.............
http://www.worldreports.org/news/150_u.s._financial_market_revamp_is_false_prospectus
PRESIDENT'S WORKING GROUP 'REFORM PLAN' EXPOSED AS A SELF-SERVING
RUSE
BETTER PLAN BY MICHAEL C. COTTRELL, B.A., M.S. CAN BE UP AND RUNNING IN
MONTHS
CONVOLUTED 'PAULSON' FABRICATION WOULD COST IMMENSE $ SUMS TO IMPLEMENT
TREASURY'S PROPOSALS REQUIRE SEVEN NEW AGENCIES, MR COTTRELL'S JUST ONE
THREE-STAGE 'PAULSON' PROPOSALS CALCULATED TO UNDERMINE MARKET
PSYCHOLOGY
ALTERNATIVE PLAN SUPPLEMENTED BY A COMPREHENSIVE SECURITIES MARKET
GLOSSARY
By Christopher Story FRSA,
Editor and Publisher, International
Currency Review, World Reports Limited,
London and New York. For earlier reports, press ARCHIVE. Order your
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...............................................................................................................................
•
INTERNATIONAL CURRENCY REVIEW, Volume 33, #s 3 & 4: Our Royal Mail
did an absolutely first class distribution job on Friday 11th July. On
Saturday afternoon, a subscriber in the Orkneys had received his copy,
and control copies in various parts of the United Kingdom had been
received. On Monday we were advised that copies had already been
delivered in parts of the United States, and on Tuesday morning we
learned that copies had been delivered in Japan. This represents a fine
achievement by the often criticised Royal Mail, and the Editor informed
them accordingly.
• Please see ARCHIVE for report dated 12th
July 2008 about this special world crisis issue.
SIMPLE RULES-BASED MARKET STABILISATION PLAN BY MICHAEL C. COTTRELL,
B.A., M.S.
In
the first quarter of 2008, Michael C. Cottrell, B.A., M.S., President
of Pennsylvania Investments , Inc., contacted the Editor of this
service to brief him in detail on the dubious stratagems behind the
disparate proposals that were finally unveiled at the end of last March
by the President’s Working Group on Financial Markets, a.k.a. the
‘Paulson proposals’.
As
a result of several conversations, Mr Cottrell, one of the foremost
securities markets experts in the United States, prepared a critique of
the US Treasury’s extraordinary ‘Plan’, which he was easily able to
demonstrate is highly destablising, not least since its plainly
confused recommendations undermine financial market confidence while
demonstrably serving the interests of the criminalist kleptocracy at
the expense of the genuine investment community. This analysis is
presented here.
In short, the Working Group’s ‘blueprint’ is shown herewith to be a
false prospectus.
Having
discredited the Working Group’s proposals, which would call for the
creation of no less than SEVEN expensive and mischievously overlapping
new US regulatory bureaucracies and for the abolition of the essential
rules-based securities market environment, which would be phased out
over an imprecise but prolonged timeframe, Michael Cottrell presents
his own effective and simple solution to the chaos brought about by
years of officially condoned fraudulent finance.
This will
require just ONE new US regulator, will call for the revalidation by
Congress of the Glass-Steagall Act and for the decisive
re-establishment of the essential rules-based system which the
Securities and Exchange Commission (SEC) has neglected to enforce in
recent years, and can be implemented in full within the space of just a
few months, at most. Additionally, Mr Cottrell’s simple Plan will be
infinitely cheaper to implement than the top-heavy Working Group
proposals.
The Editor has incorporated Mr
Cottrell’s proposal into this analysis; and the extensive Glossary,
built around Michael C. Cottrell’s original framework, has been
expanded so that all concerned can readily understand what has to be
done. Michael C. Cottrell, B.A., M.S., can be contacted direct on:
814-455 9218 (voicemail), and at: pii-mcc@msn.com.
Mr
Cottrell’s reform framework has been elaborated by the Editor to
incorporate ideas for which he alone is responsible but which Mr
Cottrell has graciously approved.
•
Important Note: We can only report US law as it stands. We cannot make
exceptions and neither can we speculate as to the prospective actions
of authorities given, for instance, the admission by UBS that it broke
the law, and the consequences of that admission for some US investors
who may consider that they are eligible for Settlement payouts. Nor can
we enter into ANY correspondence concerning that matter. The only
issues that we will discuss arising from this post are Mr Cottrell's
practical and straighforward recommendations: and these issues should
be raised with him direct.
EXECUTIVE SUMMARY
This
paper describes, exposes and then systematically demolishes the
credibility and relevance of the so-called ‘Paulson’ proposals, a.k.a.
the mish-mash of convoluted notions brought forth by the President’s
Working Group on Financial Markets at the end of March 2008.
In
passing, it questions the basis upon which expectations of repayment by
some US participants in ‘humanitarian’, Omega and other often
unregistered, and therefore usually (in the United States) illegal,
Ponzi schemes are predicated, shows why these schemes are illegal by
comparing them to what the US securities and other relevant US
legislation requires, and presents inexpensive and constructive
proposals to replace ‘Paulson’s’ dog’s dinner – which, incidentally,
would call for the establishment of no less than SEVEN expensive new US
bureaucratic agencies, whereas the Plan, devised by the securities
expert Michael C. Cottrell, M.S., which is advanced here, would require
just ONE new agency instead. Further, Mr Cottrell's scheme could be up
and running within a few months, whereas the 'Paulson' dog's dinner is
phased over an indeterminate timeframe.
OFFICIAL PROPOSALS ARE MISCHIEVOUS
On
investigating this matter, we were quite surprised at the ease with
which the Working Group’s spurious obfuscation operation could be shown
to be a glaringly false prospectus that has been jumbled together in
order to disguise what can only be described as its underlying
mischievous intent. For these proposals dishonestly seek to convey an
impression of regulatory reform (in response to the chaos in the
financial markets which has been brought about exclusively by the
serial criminality of holders of high office) – whereas their actual
purpose is to mask the objective of precluding meaningful reform in
favour of cosmetic adjustments consistent with an even more permissive
and crime-friendly environment than exists today.
Indeed
a pattern of nefarious US official behaviour has become clear since the
deregulation of the Savings and Loan Associations in 1982. It can be
summarised as follows. Far from entertaining any clear intention of
curbing excesses and seeking to contain financial sector crises and
instability brought about by organised financial fraud condoned at the
highest levels of American power, the participating US authorities
typically allow the prevailing crisis of confidence and its real
economic consequences to escalate until, as happened at the end of the
1980s with the messy ‘responses’ developed by Congress to the
‘hollowing out’ (enronisation) of the thrifts, the problems become so
huge that radical departures are agreed upon ‘under duress’ which, in
turn, provide the intended basis for a proliferation of fraudulent
financial operations ‘by other means’.
FOLDING THE CRIMINALISTS' CRISIS INTO A 'UNIVERSAL SOLUTION'
This
is exactly what these cynical ‘Paulson’ proposals are predicated to
achieve. The underlying motive here is to ‘fold’ the contemporary
financial and economic crisis into a ‘ universal solution’ which will,
if this Treasury has its way, give the arch-planners of fraudulent
finance practices, carte blanche to proliferate their scams and
aberrations for many years to come.
Accordingly, the fraudulent
prospectus disgorged by the President’s Working Group on Financial
Markets needs to be consigned forthwith to the trash can. This report
will help to achieve that.
As indicated, we present a simple,
straightforward, constructive, inexpensive and quickly and easily
implemented alternative Plan to replace it. Its author, Michael C.
Cottrell, M.S., one of the United States’ foremost securities markets
experts, argues that no further attention should be paid to the
dishonest and discredited ‘Paulson’ proposals, which have in any case
more or less run into the sand; and that the straightforward measures
advocated below should be adopted, instead.
They
would immediately inject the necessary discipline into the marketplace,
precluding scope for securities scamming models to which the notorious
American kleptocracy has become accustomed.
This paper is
supplemented by an extensive Glossary of securities environment terms,
for the benefit of the lay reader. The Editor has incorporated several
appropriate new terms in the list.
SELF-SERVING PLAN TO ‘CLEAN UP’ MESS THE CRIMINALISTS THEMSELVES CREATED
Among
the most distasteful characteristics of the world-class financial
criminals exposed through our reports is their habit of advising the
Rest of Us how the distasteful consequences of their own glaring
criminality are to be overcome. The flip-side of the accomplished US
financial criminalist is typically an unimpressive ‘angel of light’,
who preaches the virtues of sound finance, in order to mask the fact of
his endless reprobate financial misbehaviour.
Thus,
having presided over and orchestrated the stealing of colossal sums of
other people’s money, the US intelligence operative calling himself
Henry M. Paulson Jr. [but see Memorandum below], as advertised,
promulgated, in March 2008, a set of goofy and confused proposals for
the ostensible ‘reorganisation’ of the way the US financial markets are
regulated, which amounts to a pre-planned ‘new regulatory order’ – but
the purpose of which, on investigation, turns out NOT to be improved
financial sector discipline, but rather the cynical and surreptitious
institutionalisation of market conditions that will facilitate
replication of the abuses and fraudulent finance that have so far been
exposed, but on a far broader scale, in the years to come.
A
prerequisite for understanding what follows, and the prevailing
financial days of reckoning and their origination generally, is to
recognise the subversive reality of the ‘angels of light’ deception
model. The financial sector traditionally clothes itself in a mantle of
assumed righteousness, which is reinforced by generational layers of
perception yielding a belief that financial institutions are, generally
speaking, models of rectitude which cannot deviate from the strict
codes of conduct that are presumed to surround them, and therefore from
the Rule of Law.
BELATED, GRUDGING REALISATION THAT WHAT HAS BEEN REPORTED IS ACCURATE
Because
this general lazy presumption is rarely, even today, called into
question, it took, to our certain knowledge, certain British and
American circles over two years to reach the staggered conclusion that
what we have been reporting was accurate, both in general terms and
more often than not, in terms of specifics as well.
By
the same token, the underlying assumption that the exotic Treasury
proposals developed by the President’s Working Group on Financial
Markets, which will be demolished here, are of beneficial and
enlightened intent, has no basis in reality, as will now be examined.
On the contrary, as might have been expected, they represent ANOTHER
pathetic scam, a deception, a diversion, a PLOY.
We will begin
with a ‘straight’ summary of the 'Paulson' proposals, which will then
be exposed as representing a false and deceitful prospectus.
THE FALSE PROSPECTUS AS ANNOUNCED
Following
our exposures of financial fraud between June 2006 and the same month a
year later, tensions rose to such a pitch behind the financial sector
scenes that the US authorities felt the sudden need to be seen to be
‘doing something’ – an urge that resulted in the establishment of the
President’s Working Group on Financial Markets.
But
by ‘doing something’, the criminalists actually meant leveraging the
financial crisis which has developed as a direct consequence of their
criminality through the advocating of false ‘reforms’ under cover of
which they intended to institutionalise a permissive US environment
which would guarantee that their addiction to manufacturing liquidity
out of thin air through untaxed high yield investment programs (out of
bounds to ordinary mortals because outside the officially protected
corruption zone, they are lethally risk Ponzi scams: see below), would
be OK'd without recourse.
The phrase ‘Working Group’ is a
designation used by Israeli intelligence to describe an operation
inside the Israeli Government structures (viz., intelligence), with a
focus on developing a modus operandi to achieve an instructed
objective, according to Robert Littell [‘Vicious Circle’, Overlook
Press, Peter Mayer Publishers, New York, 2006].
After
‘labouring’ for eight months, the Working Group brought forth a
convoluted, fragmented and opaque ‘THREE-STAGE plan’ to ‘reform’ US
regulation of the very financial institutions with which the now
disgraced ruling kleptocracy has been collaborating to scam ordinary
American citizens, mortgage ‘holders’, the US Government itself, and
foreigners who fail to do their ‘due diligence’.
The overall
effect of the regulatory fragmentation plan put forward in bad faith
(as we demonstrate below) by the Working Group would be to place the
control of all financial markets wholly under the power of the
President of the United States – which, given the criminality of the
present and recent incumbents, would be a recipe for the
institutionalisation of fraudulent finance, the elimination of all
remaining checks and balances, and consequently for a corrosive
financial market environment leading to a financial meltdown in a few
years’ time which would make the present crisis look like a pleasant
afternoon by the seaside.
Before
we go any further, we must summarise the Working Group’s proposals
without commenting in any detail immediately on their implications:
STAGE ONE, AS PROMULGATED BY THE PRESIDENT'S WORKING GROUP:
•
The President’s Working Group on Financial Markets would be expanded to
add banking sector regulators not hitherto participating in its
deliberations, in order to broaden the Working Group‘s supposed focus
to incorporate the whole of the US financial sector, rather than just
the financial markets as such (begging the question: what was the
problem? Why the delay?).
• Lending
by the Federal Reserve: Because non-bank financial institutions have,
since December 2007 (thanks to the chaos brought about by fraudulent
finance operations over which this ‘Paulson’ himself presided) had
access to the US Federal Reserve, the Fed would be able to conduct
on-site examinations of such borrowers and impose conditions on their
operations.
• Establish a Mortgage
Origination Commission to consist of six Board Members, taken mainly
from Federal structures. The new entity would proceed to establish
minimum licensing standards and testing criteria, and would gauge and
grade the adequacy of each State’s mortgage control system. This would
be accompanied by clarification of which Federal body is to enforce
mortgage lending legislation (which, for some unexplained reason, the
Working Group could not manage to do).
STAGE TWO, AS PROMULGATED BY THE PRESIDENT'S WORKING GROUP:
•
Federal Oversight of State-Chartered Banks: It was reported that the US
Treasury recommended a study to determine whether the Federal Reserve
or the Federal Deposit Insurance Corporation (FDIC) should have
oversight of State-chartered banks. (Great! So we need a 'study'. Why
didn't the Group perform that study, then? Why the 'need' for further
delay while the 'study' is carried out?).
•
Thrift Charter to be eliminated: The following banking sector regulator
was categorised as ‘past its sell-by date’: The Office of Thrift
Supervision. This entity, which oversees US Savings and Loan
Associations (so-called ‘Thrift Institutions’) should be closed down
and folded into the Office of the Comptroller of the Currency, which
has oversight of National Banks. (No reason given).
•
A new (optional) Federal Insurance Charter: The US Treasury proposed
the creation of a Federal regulator to cover the insurance sector,
which is extremely corrupt in the United States. The first step would
be to ask Congress to create an Office of Insurance Oversight within
the US Treasury, to focus on international issues and to advise the
Treasury on insurance sector affairs. This would be the first step
towards the creation of step two, namely the creation of a new Federal
Insurance Charter. (Notice that everything is 'spaced out', laid-back,
confused and overlapping).
•
Revised payments and settlement arrangements: Under the eccentric
proposals brought forward by ‘Paulson’, it was suggested that the
Federal Reserve Board should be given oversight and rule-making
authority over the payment and settlement systems for the processing of
payments and the transfer of securities between financial institutions
and their clients. (Hence, de facto regulation of the securities
markets would devlolve into the hands of the untrustworthy Federal
Reserve).
•
Futures and Securities markets: The US Treasury used this report to
call for the merger of the Commodity Futures Trading Commission (the
CFTC) and the Securities and Exchange Commission (the SEC), neither of
which has been doing its job properly, given the sheer scale of the
bribery and corruption behind the scenes, plus reports that the SEC has
itself been engaged in trading on own account (see below).
In
particular, the Treasury proposed that the Securities and Exchange
Commission, which operates (or should operate) on the basis of precise
rules and regulations backed by rigorous enforcement, should ‘preserve’
the modus operandi of the US Commodity Futures Trading Commission,
which is that business should instead be conducted in accordance with
stated ‘principles’.
In other words, the Treasury wanted to
scrap the rules-based system (required under the 1933 and 1934
Securities Acts) and to replace it by a vague ‘principles- based’
system’, which would mean that enforcement would be almost impossible –
because a régime of relativism would prevail and key terms would
remain
undefined.
Securities
professionals are taught and intensively trained to operate exclusively
on the basis of the SEC’s ‘rules-based’ system, which precludes any
deviation whatsoever from the established rules (provided the
regulations are enforced, which has not been the case for years because
of corruption within the Securities and Exchange Commission itself).
STAGE THREE, AS PROMULGATED BY THE PRESIDENT'S WORKING GROUP:
A
new US regulatory structure would be imposed over the longer term,
under which US financial institutions would be asked to choose between
one of three Federal Charters:
• Federally Insured Depository
Institution:
This would be applicable to all lenders with Federal deposit insurance.
• Federal Insurance Institution:
Applicable to all insurers offering retail ‘products’ which entail some
degree of Federal guarantee.
• Federal Financial Services Provider:
This charter would cover all other categories of financial services
firms.
Under
this regime, the following SEVEN NEW FEDERAL AGENCIES, each with its
own hyper-expensive self-serving bureaucracy would 'regulate' US
financial institutions:
• The
Market Stability Regulator: Under this vague proposal, the Federal
Reserve was to ‘look out’ for threats to the stability of the United
States’ diverse financial system, whether they originated with banks,
insurance corporations, mortgage lenders, investment banks, hedge
funds, or with any other type of financial institution.
The Federal Reserve could require corrective measures to be
taken to address current risks or to curb future risk-taking, but these
powers could only be exercised if overall financial stability was
threatened. In other words, this entity would essentially achieve
nothing at all, leaving the financial markets alone (until it was too
late), thereby passively facilitating a progressive repetition of the
near-catastrophe experienced since the mid-1980s, but on a far larger
scale.
• Prudential Financial
Regulatory Agency: This new entity would regulate US financial
institutions buttressed by explicit Government guarantees associated
with their operations, such as Federal deposit insurance. The new US
agency would assume the rôles of the current Federal prudential
regulators, including the Office of the US Comptroller of the Currency
and the Treasury's Office of Thrift Supervision. Yet another
(subsidiary) regulator would focus on the hitherto unrestrained and
unregulated off-off-budget Government-Sponsored Enterprises (GSEs)
which, though established by the Federal Government, were placed (on
creation) into the ‘private’ sector and have implicit Government
backing, such as the Federal National Mortgage Association (Fannie
Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the
Federal Home Loan Bank System. See our report dated 26th December 2007
for insights into how Fannie Mae, for instance, has been used to
perpetrate fraudulent financial transactions in the US mortgage sector
[Archive].
•
Conduct of Business Regulatory Agency: This new regulator would be
charged with ‘consumer protection’ with respect to all categories of
financial entities. The agency would watch disclosures and business
practices, and would supervise the licensing of certain types of
financial firm.
It would absorb many of the functions of the
Securities and Exchange Commission (SEC) and the Commodity Futures
Trading Commission (CFTC), and would undertake some responsibilities
that are currently handled by the Fed, state insurance regulators, and
the Federal Trade Commission.
•
Federal Insurance Guarantee Corporation: This new agency would replace
the Federal Deposit Insurance Corporation, charging premia to guarantee
bank deposits and insurance payouts.
•
Corporate Finance Regulator: This new entity would take over other
functions of the Securities and Exchange Commission, such as the
oversight of corporate disclosures, governance issues, accounting, and
other matters.
In other words, SEVEN NEW BURAUCRACIES would regulate everything and
achieve nothing.
THE PURPOSE OF THE FALSE PROSPECTUS: OBFUSCATION
Confused?
That’s precisely what is intended. As can be seen, this curious
pot-pourri of convoluted arrangements matches the intentions of those
who framed it (and who will not see it implemented, we feel sure).
Those intentions can be summed up in the single word: OBFUSCATION.
For
these proposals were developed during the immediate aftermath of the
emergence of overt financial sector strains arising from the ongoing
exposures of the open-ended financial fraud; and their purpose, from
the outset, was not to enhance regulation and to make it ‘more
efficient’, but rather to bring forward a novel framework under cover
of ‘overdue reforms necessitated by the credit crunch and the financial
crisis generally’, which could be exploited and leveraged to cover up,
rather than to further expose, the serial financial criminality that
blew up in the faces of the US kleptocracy as a consequence of the
exposures of its endless criminality.
In other words, the
President’s Working Group on Financial Markets appears to have been
briefed in bad faith, its task being to develop a platform and
framework of proposals which would serve the purpose of obfuscating
financial criminality, while appearing to do the opposite. This was, in
short, nothing less than a typical deception, intended to convey the
dubious impression that ‘reform’ was (belatedly) being recommended,
while in practice substituting the existing regulatory system which has
not been properly enforced, with a vague, woolly régime framed
so as to
facilitate the very free-wheeling fraudulent finance and risk-taking
that the proposals are supposed to deter.
Since,
however, the proposals were brought forward by deception operatives
whose speciality has all along been dialectical ying-yang behaviour,
duplication and duplicity, the discovery that these proposals are a
sham, comes as no surprise. Whether those who listened to ‘Paulson’
making this pitch on 2nd July 2008 at the Royal Institute of
International Affairs (Chatham House) in London (the globalist UK
think-tank which masquerades as a free-standing institution of the
British nation state while constantly undermining it), understood this
duplicity, seems improbable.
On
that occasion, ‘Paulson’ presented a series of vague generalities for
the consideration of the British ‘Great and the Good’ assembled to hear
this pitch, such as that ‘the financial landscape has changed, and
non-bank financial institutions play a significantly greater role’ than
used to be the case. (When one of our special contacts attempted to
make himself known to this ‘Paulson’ fellow, he vanished out of sight).
But
the existing US regulatory régime has not ‘failed’ because it is
no
longer ‘fit for purpose’. It has ‘failed’ for three straightforward
reasons:
(1) Some of the regulatory agencies, such as the Federal Reserve Board
itself, the Securities and Exchange Commission, and the Commodity
Futures Trading Commission, are/have been corrupt.
(2) The corrupt regulators have accordingly failed to regulate, let
alone to enforce their regulations.
(3)
The focus of the corrupt regulators is to prolong the obfuscation
operation, to verbalise their dereliction of duty through spinning for
the benefit of the likes of The Wall Street Journal, and to seek to
draw a veil over such issues as the SEC's 'legitimisation' of naked
shorts for a restricted group of participants, whereas a regulator
should be completely impartial. The overall objective is
self-preservation, protection of their own personal interests, and
staying out of jail themselves.
• In respect of 'naked shorts', has the
SEC conveniently forgotten the old securities market adage:
'He who sells what isn't his'n, You put it back or go to prison'?
TERMS DELIBERATELY LEFT UNDEFINED UNDER THE INTENDED 'PRINCIPLES-BASED
REGIME
In
place of the existing (albeit unenforced) regulatory régime,
‘Paulson’
proposed a system not of rules-based regulation, which could be
enforced if the regulatory agencies themselves were not corrupt, but of
‘principles’-based regulation, which, by definition, would entail that
there would be no rules to be enforced, terms are not defined, and that
breaches of ‘principles’ are liable to be irrelevant because it would
always be a nuanced matter of relatavist judgment whether principles
were being flouted, or not. In otherwise, such a régime would
not
amount to a regulatory régime at all, but rather to a crooks’
charter
and paradise. ALL OVER AGAIN.
If the existing US regulatory
agencies were doing their jobs properly, they would be adequate for the
purpose – and certainly far more adequate than the deliberately
complexified, overlapping and obfuscatory framework suggested by the
President’s Working Group on Financial Markets.
But while the Working
Group may be redundant and has discredited itself, the financial market
issues that it was supposed to have addressed, remain in existence and
as intractable as before.
THE EXISTING U.S. REGULATORY FRAMEWORK
The existing US regulatory framework, for the record, consists of the
following agencies:
•
Federal Reserve System: Supposedly regulates the US monetary system and
oversees bank holding companies. Historically lacked real assets apart
from its contract to print the currency of the United States, which
ought to be a function of the US Treasury,
•
Securities and Exchange Commission (SEC): Established by the Congress
in 1934 to regulate the securities markets in accordance with stated
rules and under the 1933 and 1934 Securities Acts, to maintain ‘fair’
markets and to protect investors. The SEC also, as a primary element of
its oversight powers, reviews corporate financial statements, is
supposed to enforce the securities regulations, and provides guidance
for the framing of accounting rules.
•
Federal Deposit Insurance Corporation (FDIC): This regulator insures
deposits lodged by bank customers against the failure of banks. The
FDIC was created in 1933 to build and maintain public confidence and to
encourage stability in the financial system by fostering sound banking
practices.
• Office of the
Comptroller of the Currency: This traditional arm of the US Treasury
Department was established in 1863 to supervise and regulate National
Banks and the Federal branches of foreign banks. Its purpose is to
promote the safety and soundness of the banking system and to conduct
on-site examinations of banks across the nation.
•
Commodity Futures Trading Commission (CFTC): Established as a US agency
in 1974, this entity is supposed to ensure the open and efficient
operation of the US futures markets, which started out trading
agricultural futures, and now trade sophisticated synthetics
(derivatives).
•
Office of Thrift Supervision: This agency issues and enforces
regulations governing the United States’ Savings and Loan sector
(Thrift Institutions). It is responsible for ensuring the safety and
soundness of deposits with Thrift Institutions.
SHORT HISTORY OF U.S. FINANCIAL TRANSPARENCY
(A) 1890 to the 1920s:
Leading
American financiers of the late 19th century, such as John J. Astor,
Cornelius Vanderbilt, John D Rockefeller and J. P. Morgan (1), provided
capital to finance the establishment of very large corporations and
combines, also known as the trusts, which came to wield enormous power
across entire industrial sectors. As a consequence, by the year 1890,
the control of 5,000 corporations was held by about 300 such trusts
operating all over the country. By 1900, the largest dozen of these
combines were capitalised at over $1.0 billion (2) .
Accordingly,
investment bankers became corporate directors – with Morgan, for
instance, having board representation on 78 investment bank companies.
Therefore,
when these large corporations needed injections of capital, the bankers
who were sitting on their Boards claimed to represent the bondholders
(3).
Disclosure of financial information was entirely voluntary,
even though disclosure of predator practices could only be revealed via
the balance sheet (4). The Sherman AntiTrust Act of 1890 was enacted in
order to define and make the monopolistic activities of such trust
companies illegal (5).
In 1914, the Clayton Anti-Trust Act sought to increase competition
across the business sector by restricting predatory corporate activity
such as acquiring other competing corporations and the practice of
allowing interlocking corporate directorships (6).
And
the Federal Trade Commission Act, passed in the same year, established
a regulatory authority, acting as the ‘watchdog of competition’, to
protect the American consumer from ‘unfair methods of competition’ (7).
In other words, raw, unregulated capitalism was by now seen as being
prone to abuse and in need, therefore, of official constraint.
(B)1920s to 1941:
During
this period, the number of investment companies that were formed in the
United States steadily increased from six in the year 1921, to 46 in
1925 (8).
While most of these investment companies were subject
in some measure to the ‘Blue-Sky’ [see Glossary] requirements, the
State statutes and regulations appear not to have treated investment
companies much differently from the general run of corporations and
business trusts (9).
As previously, disclosure of financial information
remained voluntary, even though the disclosure of predatory practices
could only be conveniently disclosed through the balance sheet (10).
Between
1927 and 1929, these investment companies raised approximately
$2,300,000,000 from the sale of new securities. Their assets increased
from $550,000,000 in 1927 to almost $2,600,000,000 in 1929 (11).
Distribution of the shares in these fixed trusts reached peak levels
during 1930 and 1931, when $600,000,000 of their shares were sold,
inducing the passage of various US statutes and the promulgation of
regulations which brought the expansion of these fixed trusts to an end
(12).
In 1933, North Carolina adopted a regulation (which in due
course was adopted as Section 11 of the Investment Company Act of 1940)
which prohibited the charging of any sales load on the switching of
trust shares (13). As a consequence of the lessons learned the 1920s
and early 1930s, including bitter experiences suffered by investors
with ‘bucket shops’, the original and copycat Ponzi and Pyramid-selling
schemes, and other forms of fraudulent finance that flourished in this
free-for-all environment, the Congress passed the stringent Securities
Acts of 1933 and 1934, followed by the Maloney Act of 1935; and in the
banking sector, the Banking Act of 1933 and the Glass-Steagall Act of
1933 which restricted US banks to banking operations and precluded
their participation in the securities markets. The Securities Acts were
updated by the Securities Acts Amendments of 1970.
THE EXPENSIVE FALSE PROSPECTUS ANALYSED:
U.S. TREASURY’S REGULATORY 2008 ‘REFORM’ PROPOSALS (14), (15)
Astonishingly,
in view of the obvious fact that these proposals would be bound to have
an impact on fragile financial market confidence, the Working Group’s
suggestions were phased, with short- medium- and long-term proposals
set within an imprecise timeframe, interspersed with periods of
reflection for ‘study’, and personnel being liable to be poached from
old regulatory agencies that would remain alive in one phase, but not
the next, and with every opportunity taken to ensure that the
responsibilities of no less than SEVEN newly proposed, expensive
agencies would overlap as much as possible, while existing agencies
would languish in a state of limbo or uncertainty pending prospective
abolition, or not, as might be decided in a later phase.
Self-evidently,
this confused prospectus is a recipe for undermining confidence in the
integrity of financial market regulation, and therefore in the
integrity of the financial markets themselves, as well as maximising
the potential for obfuscation, as will be seen:
(A) THE SHORT-TERM PROPOSALS:
The
President’s Working Group on Financial Markets is/was intended, we
read, to be composed of a Coordinator of Financial Regulatory Policy
and to cover the entire American financial sector, as indicated abovc,
not merely the financial markets.
It
was thus to incorporate banking regulators not currently participating
in the study group, and would need to broaden its financial focus to
capture the whole of the financial sector.
Hence the Working
Group was to facilitate inter-agency coordination and communication,
with a view (ostensibly) to developing proposals to mitigate all
systemic risks to the financial system, to enhance the integrity of the
financial markets, to promote protection of consumers and investors,
and to support the efficiency and competitiveness of the financial
markets.
Since overall ‘competitiveness’ covers the stance of
any given financial market environment by comparison with foreign
counterparts, the Working Group would or will have had to consider the
impact of any proposals it puts forward on the competitiveness of the
market in question, with its equivalents abroad; and the moment that
such considerations had to be considered, the knee-jerk response of the
Working Group’s membership is liable to have been to opt for the most
lenient and liberal ‘solution’ on the drawing board.
As
for the proposed creation of a Federal Mortgage Origination Commission
(MOC), this huge new bureaucracy would be headed by a Director
appointed by the President of the United States for a four- or six-year
term – which means that, in accordance with the standard corrupt US
practice, the job would be likely to go to a presidential crony.
The
six Board members would be supplied from the Federal Reserve, the
Office of the Comptroller of the Currency (OCC), the Office of Thrift
Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC),
even though the last of these three agencies were to be abolished under
the proposals, and the Federal Reserve itself remains vulnerable, under
unpublished H.R. 2778 of the 110th Congress, to be abolished and merged
within the US Treasury.
The
other two Board Members would be supplied from the National Credit
Union Association and the Conference of State Bank Supervisors.
The
new Mortgage Origination Commission would develop minimum licensing
standards, testing critera and a system for grading the adequacy of
each State’s financial regulatory arrangements. The drafting of
regulations covering national mortgage lending legislation would, the
Working Group apparently proposes, remain exclusively with the Federal
Reserve, as provided for under the Truth in Lending Act.
Finally,
the States should be given clear authority to enforce Federal mortgage
legislation upon independent mortgage originators, that is to say,
those mortgage originators considered to have been responsible for
originating most of the so-called ‘sub-prime’ loans.
There was no reference to the practice of
collectivising such mortgage loans, let alone with false documentation
purporting to represent other mortgages but which lack any underlying
asset at all, for the purpose of ‘securitisation’ and marketing to
gullible investors at home and abroad who may not perform adequate (or
any) due diligence.
For the short term, too, the Treasury’s
blueprint put forward two considerations relating to the overall
stability of the financial markets. Specifically:
(1) The
prevailing temporary liquidity provisioning process, designed to
alleviate threats to market stability (launched in December 2007 in the
face of the crisis of confidence which overwhelmed the American
authorities given the accumulated consequences of their incompetence,
criminality and mismanagement of the US financial system), must ensure:
• That the process is calibrated and
transparent (with no definition of terms here);
• That appropriate conditions are attached
to the lending, (with no explanation of ‘appropriate’);
•
That information flows to the Federal Reserve System via on-site
examinations, and/or that other conditions or means can be imposed as
determined by the Federal Reserve, with no recourse and without any
indication here of what the Federal Reserve might have in mind.
(2)
The President’s Working Group should consider broader regulatory issues
related to discount window access for non-depository (i.e., investment
banking) institutions. So, this Working Group has not yet undertaken
such considerations? What, then, was it doing between August 2007 and
March 2008, exactly?
(B) THE MEDIUM-TERM PROPOSALS:
Under this heading, the Treasury recommended, as summarised above:
•
Elimination of ‘redundant’ banking regulators, without providing any
rationale for such a drastic and reckless measure, and without having
practical alternative proposals formulated or in place;
• Closing down the Office of Thrift
Supervision, ditto;
•
Folding the responsibilities of the Office of Thrift Supervision into
the Office of the Comptroller of the Currency, again with no rationale
for such action being provided.
Having shredded key existing
regulatory institutions without replacing them (at this stage), the
Treasury proposed that the next step should be that a leisurely ‘study’
should be undertaken, to establish whether the Federal Reserve or the
Federal Deposit Insurance Corporation (the FDIC) should have oversight
of the State-chartered banks.
This seems to us to be quite
ridiculous, and asking for trouble. First, some existing regulators are
abolished, without the Treasury at this stage having a clue what should
take their place. Secondly, having abolished the regulators, the
Treasury would then embark upon a ‘study’ to decide what to do next, as
it says it is undecided (cannot make up its mind) whether the Fed or
the FDIC should oversee the State-chartered banks – a confused
recommendation akin to throwing all the furniture out of the window
before deciding what, if anything, should replace it.
A
moment’s reflection will convince even the most enthusiastic supporters
of the corrupt US ‘Paulson’ Treasury that these proposals are, of put
it mildly, mischievous.
Nobody who cares about US financial
market stability can possibly take them seriously: indeed, the
proposals , even as far as has so far been described here, are so mixed
up and destabilising, that it is no exaggeration to ask whether they
represent some kind of spoof.
Has some malevolent gremlin
substituted this mischievous verbiage for what the Working Group
actually submitted? Given the track record of ‘Paulson’s criminalist
Treasury, that may not be as far-out a proposition as it may appear to
be.
The
third element of the intermediate recommendations brought forward by
this muddled report departed from common sense by recommending that the
Federal Reserve – which has achieved notoriety thanks to its two-tier
policy of purporting to represent the Rule of Law while at the same
time surreptitiously condoning and facilitating corrupt financial
practices through exploitation of the unaudited and secretive Federal
Inter Bank Settlement Fund – should acquire oversight and rule-making
authority over payment and settlement systems that process payments and
transfer securities between financial institutions and their clients.
This
would be worse than placing the fox in charge of the chicken coop: it
would ultimately lead to the liquidation of the chickens by
guaranteeing the perpetuation of the fraudulent finance model that has
been exposed by notorious recent developments. And again, no coherent
rationale for this supposed ‘reform’ was presented with the
recommendations.
Put
another way, the report then recommended that the Federal Reserve
should acquire oversight and, inconsistently, rule-making authority,
over the payment and settlement systems that process payments and
transfer securities between financial institutions and customers.
Since
this all-embracing ‘reform’ would include ALL institutions, this would
mean inter alia that the Federal Reserve would in practice acquire
rule-making authority over securities broker-dealers. Hence, the
rule-making authority to be abolished with the folding of the
Securities and Exchange Commission (see below) would reappear under the
aegis of the Federal Reserve, although we are not told what category of
rules the Fed would promulgate. It can be taken as read that the rules
to be promulgated by the Federal Reserve would bear no discernible
relationship to the rules long since established (but lately, not
enforced) by the Securities and Exchange Commission.
On
top of this nonsense, the proposals recommended a further unresolved
‘solution’, calculated to maximise uncertainty – this time in the
insurance sector. First, the Working Group floated the idea of creating
a Federal regulator to oversee the insurance industry.
Then,
after floating this suggestion, the Treasury wants to ‘ask Congress’ to
create a new Office of Insurance Oversight (OIO) which would function
from within the Treasury, meaning of course that the Treasury would
control the insurance sector directly. Since the Treasury, like the US
Federal Reserve, has demonstrated that it is thoroughly corrupt, this
recommendation would simply enable the corrupt Treasury to capture and
channel the well-known corruption that bedevils the insurance sector in
the United States. The OIO would supposedly focus upon international
insurance sector issues, while also providing the Treasury with
‘advice’ – a completely meaningless concept since the entity, resident
within and therefore a part of the Treasury, would accordingly be
advising itself.
[The
probable hidden intention here would be to replicate the Federal
Financing Bank (FFB), which is likewise an office (plus some filing
cabinets) situated within the US Treasury but which for many years
enjoyed off-budget status, thereby providing the Treasury with
increased ‘wriggle-room’ for its usual ‘smoke-and-mirrors’ financial
shenanigans. As matters stand today, the Federal Financing Bank is one
of the basic mechanisms that enables the Secretary of the Treasury to
manipulate the Government’s finances by exploiting the fact that is
allowed by statute to have $15.0 billion of debt outstanding at any one
time, so that by means of creative bookkeeping, up to $15.0 billion
extra can be borrowed on those occasions when the Congress has deployed
its residual ‘control’ over the spending of the Executive Branch by
refusing to raise the Statutory Debt Limit, in exchange for some
Federal Budget concession or other that it seeks to extract from the
Executive Branch].
In
short, and Office of Insurance Oversight inside the Treasury would
simply be leveraged by the corrupt Treasury for its own purposes, and
in furtherance of the dubious interests of the official perpetrators of
fraudulent finance operations who have been cornered and are running
for cover.
Even worse are the quite appalling proposals
affecting the securities sector. The Working Group suggested, as
mentioned above, that the Commodity Futures Trading Commission (CFTC)
and the Securities and Exchange Commission (SEC) should be merged –
again, providing no rationale for such a radical shake-up. The actual
purpose here would be to end the settlement reached by the Securities
Acts of 1933 and 1934, which provided for the securities sector to be
governed by the strict application of precisely defined rules – the
settlement that ended the chaos arising out of the undisciplined
free-for-all allowed in the 1920s, when bucket-shops ripped American
investors off and investors enjoyed no protection from sharks other
than that provided by the ‘Blue Sky’ above – in favour of standardising
the so-called ‘principles-based’ approach employed by the ineffective
Commodities Futures Trading Commission. Neither the SEC nor the CFTC
have, in recent years, fulfilled their regulatory responsibilities, due
to internal corruption; but scrapping the rules-based approach in
favour of the CFTC’s permissive ‘principles-based’ approach would
guarantee and perpetuate financial corruption perhaps for generations
to come.
An indication of the deceptive nature of this
recommendation can be gauged by the mealy-mouthed language employed to
present this sorcery for public consumption. Specifically, the Working
Group postulated that the Securities and Exchange Commisssion should
seek to ‘preserve’ the CFTC’s principles-based approach, presupposing
of course that the SEC should DROP its rules-based approach: but in
order to mask this deception, THIS CENTRAL RUSE WAS LEFT UNSTATED.
‘Preserving’
the principles-based approach used by the ineffective CFTC would,
self-evidently, be inconsistent with ‘preserving’ any rules-based
approach – which is the point of this proposition.
What the
Treasury is seeking to achieve here is to pass off a fraudulent reform
as a key element of an improved regulatory system, when what would be
perpetrated would be the de facto elimination of the existing framework
which, if properly applied, would protect investors from fraud and make
it impossible for fraudulent finance operations such as those that have
been exposed, to exist, let alone to flourish. In other words, this
recommendation represents a typically diversionary fraud by the
‘Paulson’ Treasury, consistent with the reputation it has earned for
itself as an institution of the Federal Government in which no trust
can currently be placed, not least because, on the basis of its recent
behaviour, it cannot be relied upon to honour its obligations.
(C) THE LONG-TERM PROPOSALS:
Not
content with the chaos that would be created as a consequence of this
wrecking operation to date, the Working Group, true to its false
prospectus, capped this truly shambolic mish-mash with a series of
half-baked long-term proposals, the net effect of which would be to
leave everything up in the air, thereby maximising scope for a
1920s-type free-for-all – and ensuring that the investment environment
of future years would be consistent with the underlying intention of
this dog's dinner of spurious proposals – namely to facilitate the
perpetuation of fraudulent finance, following the shocks administered
to the criminalist kleptocacy by recent developments.
By
staging its fitful proposals over a prolonged and imprecise timeframe,
the US Treasury has of course already compromised the prospects for
global financial stability, since no-one now knows what is coming next.
The fact that proposals have been put forward in such a vague,
disjointed and dissonant manner has itself added to the febrile
atmosphere of uncertainty, although the Treasury doubtless hopes that
the deceptions encased within these proposals will have passed its
targeted audiences by – an example being the attendees at the Chatham
House event in London addressed by ‘Paulson’ at the beginning of July.
These people will have been easily impressed by anything that the
Secretary of the Treasury might have told them – the purpose of such
presentations being to build an unthinking ‘consensus’ (in London,
especially) for the treacherous ‘reforms’ that the corrupt ‘Paulson’
Treasury is putting forward.
The
so-called long-term proposals (with no timeframe mentioned) would
involve, to begin with, a revolution in the status of all US financial
institutions. All lenders equipped with Federal deposit insurance would
be granted a brand new charter certifying them as a Federally insured
depository institution. All insurers offering retail products involving
some degree of Federal guarantee, would be chartered as a Federal
insurance institution, under the direct regulatory control (see above)
of the Treasury. Finally, all other types of financial institution
would receive a charter signifying their status as a Federal services
provider. Note the crucial use of the adjective ‘Federal’ here: what is
intended is the usurpation or duplication by the Federal Government (it
is not yet clear which) of ALL the regulatory functions currently
exercised by the State Governments. Whether usurpation or duplication
is intended, this proposition must have gone down like a lead balloon
in State capitals.
Under
the first of this final batch of dubious proposals, a so-called Market
Stability Regulator, namely the Federal Reserve itself, or else an
entity that is subservient to it (unclear), would be established,
which, however, would hardly undertake any regulating of the financial
markets at all. Instead, it would ‘look out for’ threats to the
stability of the US financial system, whether they might originate with
mortgage lenders, banks, insurance companies, investment banks, hedge
funds or any other category of institution. The only environment in
which the so-called new Market Stability Regulator would intervene
would be when it had formed the subjective judgment that corrective
action needed to be taken to address current risks, or that it is
necessary to constrain further risk-taking. This proposal appears to
have nothing to recommend it at all.
Establishing
further expensive bureaucracies without any teeth is a pernicious
practice equivalent to a fudge, and the impression given here is that
the Working Group needed somehow to convey the impression that the
permissive environment that it was subversively recommending would be
watched closely for aberrations, whereas the underlying and thoroughly
dishonest intention and consequences of these proposals will be to
maximise potential for market abuses across the board.
The next
piece of gross mischief would entail the establishment of a so-called
Prudential Financial Regulatory Agency, with a brief to regulate
financial institutions which have explicit Government guarantees
associated with their business operations. Hence this new agency would
regulate all institutions equipped with Federal deposit insurance. This
agency would also take over the roles of the current Federal prudential
regulators (for no discernible reason), such as the Office of the
Comptroller of the Currency and the Office of Thrift Supervision.
The
agency should, the report argued, focus on the protection of consumers
and ‘help’ to maintain confidence in the financial system (by
unspecified means). The agency would operate on the basis currently
applied to the regulation of the insured depository institutions – in
which case, since this new agency would replicate existing practice,
why do the existing reglatory arrangements need to be changed? – using
the standard capital adequacy requirement techniques, imposing
investment limits, circumscribing the scope of an institution’s
activities, and directing on-site risk management supervision. The
agency would be focused on institutions, rather than operating
generically.
On top of all this, a separate new regulator was
proposed, to focus on the powerful and wayward Government-Sponsored
Enterprises (GSEs) which have been surreptitiously exploited to
facilitate fraudulent finance operations, such as the Federal National
Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage
Corporation (Freddie Mac) and the Federal Home Loan Bank System. As we
discussed in our report dated 26th December 2007, corrupt mortgage
lenders have been transferring the full risk and ownership of mortgages
to these off-off-budget entities which were established by the
Government but positioned immediately upon their foundation, into the
private sector, so that they could be excluded from the scrutiny of the
Federal Budget process.
The crisis surrounding Fannie Mae and
Freddie Mac that blew up during the week ending 11th July 2008 – over
seven months after we posted our report on the abuse of the foreclosure
process on 26th December 2007 – illustrated the mischievous and
destabilising nature of the Working Group’s proposals, because this
dimension of the crisis ‘suddenly‘ ran out of control in July 2008,
despite the fact that the Presidnet's Working Group had intended to
‘deal with’ the Government-Sponsored Enterprises problem under its
‘long-term’ category, rather than as an immediate, burning issue of the
geratest significance, as flagged by our report dated 26th December
last year.
This
miscalculation alone showed the Working Group to be extremely
incompetent, in dereliction of its self-appointed duties, and quite
incapable of handling the huge mess for which its own largely corrupt
membership has been specifically responsible. Fancy treating the US
GSEs as a long-term problem when several of the key GSEs have all along
been at the very centre of the machinery of fraudulent finance that is
in the process of being widely exposed, and which the Working Group was
meant to be addressing! This was surely taking OBFUSCATION too far.
No
rationalisation was presented for the proposal that a separate
regulator should be established to ‘regulate’ these off-budget
entities, other than the spurious one that implicit Federal backing is
qualitatively differentiated from explicit Government backing.
Presumably the woolly thinking here is that the legal status conferred
by Federal Statute on the GSEs would be violated if the proposed
Prudential Financial Regulatory Agency were to assume regulatory
responsibility for the GSEs – which have hitherto, by the way, escaped
all regulation and have thus provided fruitful ongoing scope for
organised criminal and financial fraud operations.
The other
agencies proposed by the Working Group simply would compound the
confusion and the seemingly deliberate dispersion of responsibilities
which this dog’s dinner of recommendations perpetrates. Specifically:
• A
so-called Conduct of Business Regulatory Agency would cut across the
‘responsibilities’ of the mish-mash of other agencies, establishing the
basis for endlessly unresolvable turf wars that lead nowhere. This
bureaucracy would ‘observe’ disclosure information and business
practices (with no indication of what it would do with these
observations), and would also engage in the licensing of certain
categories of business firms (so that its personnel would be tin gods).
It would supposedly absorb ‘many of’ the functions of the
Securities and Exchange Commission, the Commodities Futures Trading
Commission, the Federal Reserve System, of the State insurance
regulators and even the Federal Trade Commission. The rationale of all
this is left unclear.
However it would do so, according to the
Working Group’s blueprint, after an undefined period of uncertainty and
therefore turmoil – during which hiatus the usual pork-barrel lobbying
operations would have been deployed at full throttle, with no-one
knowing which way any of the cats would be liable to jump, and a state
of officially contrived chaos having long since been generated.
By
this stage, the divisions of regulatory responsibilities will have
multiplied to such an extent that every agency would have burgeoning
responsibilities overlapping with some or all of the others, so that
nothing at all could ever be resolved – a remarkably classical Leninist
formula for ensuring the definitive perpetuation of the collective will
of a small clique at the centre. Lenin established two orders for his
Party-State, under which all the institutions of the State were
replicated by Party entities. This meant that a complainant making
representations to the State structures would find that his case would
be frustrated by the parallel Party structures, and vice versa. This is
exactly the state of affairs, albeit a much more fragmented and
complicated one, that the President’s Working Group has put forward.
This blueprint would have the following overall consequences:
•
It would complete the process of discrediting capitalism which the
free-wheeling fraudulent finance operations perpetrated by the exposed
criminalist operatives and institutions have successfully initiated to
date; and:
• By ensuring the
perpetual overlapping of responsibilities with their concomitant
bureaucratic turf warfare, it would institutionalise and confirm
absolute power and freedom of corrupt action for the central
controlling élite, namely for a successor group of organised
financial
criminals who would build upon this new foundation of institutionalised
US regulatory confusion, to create the conditions for the next global
financial showdown, which would certainly be terminal.
Since, whether ideologues like it or
not, the ultimate objective is the destruction of free enterprise and
the abolition of all private property except for the privileged
criminalised élite, that showdown would be terminal. It is not
going to
happen, but that is the long-range objective.
Two other
expensive US agencies would, under the convoluted blueprint, be tacked
on to the contrived ramshackle mess so far recommended. The proposed
Federal Insurance Guarantee Corporation, which is to replace (for no
apparent reason) the existing Federal Deposit Insurance Corporation
(FDIC), would charge premiums to ‘guarantee’ bank deposits and
insurance payouts.
No terms are defined here (as is the case
throughout this false prospectus), so it is not clear why the FDIC
cannot, if really necessary, have its existing statute amended so as to
expand or modify its responsibilities in accordance with this proposal.
What is wrong with the existing structure?
This unanswered question is applicable throughout.
Finally,
the Working Group floated the batty idea of a Corporate Finance
Regulator which would supercede the functions of the Securities and
Exchange Commission (SEC), and would focus on corporate disclosures,
corporate governance, accounting matters, and other issues. Presumably
the idea here is that there should be a special agency which sticks its
nose into the affairs of US corporations generally – a suggestion that
may mask a cynical political objective to subject all US corporations
to an officially sponsored espionage system which would be abused, if
information gathered by this agency fell into the ‘wrong’ hands. If we
assume, as we must, given recent past experience, that the underlying
intentions here are malevolent and mischievous, the creation of such an
agency would signal to anyone who is not sitting on his or her brains
that an ever more socialist United States had essentially finished with
capitalism altogether.
There
is also an obvious sense that these convoluted ‘regulatory’ proposals
have been brought forward in bad faith for yet another reason: their
purpose includes the need to deflect criticism that ‘nothing is being
done to stop this happening again'. Meanwhile, the socialist European
Union has predictably responded with various trial balloons suggesting
that the unprecedented display of financial scandal that has been
partially exposed, can at long last be exploited as a rationale for the
imposition of European-style socialist (Communist) regulation which, by
its nature and intent, would smother risk-taking and close off
innovation.
For example, Tony Robinson, chief spokesman for the
Socialist Group in the Soviet-style European Parliament, said on 3rd
July 2008, quite correctly, that the capitalist system had disgraced
itself and must now face much stricter regulation. Since we must agree
that the capitalist system has indeed disgraced itself as a consequence
of the hijacking of the American official structures by organised
criminal cadres, it is hard to argue against what Mr Robinson had to
say:
‘There
is a groundswell of opinion building up for action at a European level.
Our group wants a ban on all investment funds speculating on food. We
support a proper functioning market, but what we have seen in this
crisis is a most distasteful morality where decisions are driven by
greed. Hedge funds have used debt to take over companies and strip out
their assets. This must stop’.
Leaving aside the ideological
hang-ups and ignorance of the market system embedded in these comments,
it is a fact that although proposals for a pan-European regulator have
not yet been crystallised into a draft EU Directive, the European
Parliament has been ‘debating’ three separate proposals to crack down
on private equity, hedge funds, and banking sector bonuses.
(Actually,
no debate ever takes place inside the European Parliament: rather, the
Members (MEPs) address the podium just as they do in the covert Soviet
system. Indeed, the European Parliament chamber precisely replicates
the Soviet model. In order to complete the transformation, all that
would be necessary would be to replace the esoteric European flag above
the podium with the familiar bust of Lenin and a nice red star plus a
hammer and sickle, and we would all be back to square one. The Editor
witnessed this reality in Brussels with his own eyes several weeks ago).
Should
such an outcome materialise over time, as intended, the process would
have been given decisive added momentum by the pillaging and fraudulent
finance that have been exposed since June 2006. This would be a
supposedly 'unintended consequence' of the organised criminality.
RESULT: EXTREME LACK OF REGULATION ENFORCEMENT
That
the proposals put forward by the President’s Working Group are damaging
and would have grim consequences has been well attested by people who
know what they are talking about.
For instance no less than
THREE former Chairmen of the Securities and Exchange Commission, David
Ruder, Arthur Levitt and William Donaldson, have condemned these
proposals outright, although the language they have used to date has
been inappropriately circumspect.
Their general view is that a
Treasury initiative to adopt the ‘principles-based’ regulatory approach
applied by the Commodity Futures Trading Commission would be 'a
mistake' (16) . David Ruder, an SEC Chairman under President Reagan,
has commented that:
‘It’s not at all useful for the Securities
and Exchange Commission to function on the basis of ‘a prudential-based
attitude’ in which regulators solve problems by discussing them
informally with market participants and asking them to change… we have
an enforcement approach’ (17).
For his part, the former SEC Chairman, Arthur Levitt, a Bloomberg Board
Member, has commented:
‘That
proposal does more violence to protecting America’s investors from the
standpoint of transparency as anything in the Paulson proposal’ (18) –
referring specifically to substitution of a ‘principles-based’ approach
for the tried and tested (until wantonly unenforced) rules-based
approach which the existing securities market legislation requires of
the SEC.
As matters stand the SEC is, however, considering the
easing of its rules to allow foreign stock exchanges and brokerages to
sell securities direct to US investors, under supposed surveillance by
overseas regulators (such as the British Financial Services Agency)
‘who have rules that are similar to those in the United States’ (19).
In
other words, even as we speak, the Securities and Exchange Commission
is thinking of watering down its currently poorly enforced rules-based
system to allow various foreign stock exchanges and brokerages to deal
directly with US investors, rather than going through US intermediaries
– so that there would be no control over the volume of dodgy financial
‘products’ that could soon be sold back into the United States, given
that non-institution US investors would not necessarily be subjected to
any surveillance at all. This might very well be hazardous in the
future.
As
for the immense problems surrounding derivatives – leveraged,
securitised, hypothecated products yielding accruals that are not
denominated in real US dollars, but rather exclusively as digitised
entries generated electronically in just nanoseconds on bank statements
– the Working Group’s proposals sidestepped them altogether: a sure
indication that the real purpose of these proposals has never been to
‘solve’ any of the intractable problems created by the invasion of the
capitalised system by organised crime, but rather that their purpose is
precisely to obfuscate what has been happening so as to draw a veil
over the criminal activities that have led to this crisis.
The
irresponsible securitisation of ‘sub-prime’ loans and the hoodlum
practice of mixing them up with fraudulent paper backed by no assets at
all, were not even addressed.
THE ‘PROGRAMS’, OMEGA PONZI SCAMS, ETC.
Exotic
investment schemes marketed by scamsters promising sky-high returns
into which many Americans entered and ploughed their savings a number
of years ago, and which have not paid out, may have purported to be
exempt from registration under the Securities Acts of 1933 et seq. [see
Glossary below] and in terms of State securities registration
requirements.
Such unregistered schemes, unless narrowly they
are exempt from registration in conformity with relevant stringent
statutory restrictions (such as being confined, for instance, to no
more than 35 subscribers nationwide), are all illegal and violate the
National Association of Securities Dealers (NASD) and SEC regulations,
and were/are also further illegal as they may not have been registered
with the relevant State Securities Commission.
When
considering such participations, such US investors, in conformity with
the Prudent Man Rule under the 1933 Act [see Glossary] should, in
performing their Due Diligence, have been in receipt, and should have
reviewed, the necessary registration and prospectus documents meeting
the requirements of the NASD, the SEC and State Regulators.
In
cases where the issuer was a bank, the participants have undoubtedly
been victimised. In all other instances, they will have acted on the
basis of fraudulent documents which made them co-conspirators. The
issuers were and remain engaged in Ponzi schemes, as we have several
times reported [see Glossary and Appendix] and are all co-conspirators
and open to prosecution under R.I.C.O. and other relevant US
legislation, including multiple anti-money-laundering legislation.
Furthermore,
it is likely that some American participants will have signed
Non-Disclosure forms or agreements, a fatal error which will have meant
that they can have no recourse to US authorities for relief from being
scammed, not least because in having participated in any of these
schemes and signing such forms, they became co-conspirators themselves,
as indicated.
They cannot therefore seek protection from the
relevant regulators, and neither can they disclose their
participations, especially where money-laundering will likely have been
intended, since this presupposes tax evasion: and under the Tax Equity
and Fiscal Responsibility Act (TEFRA) of 1982, US taxpayers are
required to report all sources of income, wherever it was earned
anywhere in the world. It follows that all receipts by US taxpayers
since the passage of this Act which have not been reported to the
Internal Revenue Service are taxable, which means that all US taxpayer
holdings in offshore accounts that are not declared for tax are
vulnerable to payment of the tax and penalties. Imprisonment is also
dished out to tax evaders in the United States with abandon.
But
the participants in these programs have received nothing and have so
far forfeited 100% of their investments. Having signed Non-Disclosure
documents purporting to protect the program organisers or distributors
from the consequences in the United States of their criminality, and
the participants from the consequences inter alia of prospective tax
evasion and of co-conspiring in a felonious transaction, some
participants have been left dangling and are at the mercy of ruthless
MK-ULTRA-style perception manipulators who have been managing their
expectations for years.
Under the regular
securities laws of the United States, investors and participants have
to show source of funds. How can they take receipt of the proceeds of
these ‘program’ and Omega-type Ponzi schemes without exposing
themselves to US authorities, in many cases with prospectively grievous
consequences?
These participants need to ask themselves: are the
websites that may have been managing their expectations for years
disclosing both sides of the equation, or have they simply been
expressing justified anger and frustration at the brazen evil of the
high-level, well-connected perpetrators of these scamming programs,
thus deceiving their intended readerships by failing to look at the
other side of the issue, namely the possibility that the scamsters may
have compromised the investors?
They also need to consider
whether it is likely that the hitherto ‘protected’ perpetrators of
these scams have, all along, also been relying upon their knowledge
that their victims may be impotent because they may be engaged in
prospective tax evasion, as a rationale for the integrity of the
Greenspan-Bush Sr. ‘Never-Pay’ model. In this connection, it is
axiomatic that crooks always seek to compromise their victims, thereby
ensuring, for instance, that they cannot testify against them.
In
the case of the Swiss banks that marketed such participations, their
first priority is understood to have been to obtain the targeted
investor’s signature on the coveted Non-Disclosure document. Then the
participant was typically asked to prove his or her funds. Thirdly, the
participant may have been requested to travel to Europe, or to courier
funds to the bank’s European address, where their account would have
been be opened. In cases where very large amounts were put up, the
bank’s aircraft was actually dispatched to collect the participant and
his funds..
Participants in these schemes may be caught, if
any of these unfortunate conditions apply to their circumstances.
Co-conspiracy is a function of motive. If the motive was to receive
inordinately high yields and/or to evade taxes in breach of the Prudent
Man Rule, TEFRA and/or Internal Revenue Service regulations, it is not
at all clear on what basis expectations of repayment of principal with
interest may be predicated. The fact that the perpetrators
(‘principals’) of these scams are indeed despicable, ruthless snakes is
no comfort for the participants because the perpetrators may have taken
care to ensure that those whom they have scammed are co-conspirators as
well as victims.
Even more disconcertingly, the professional
perpetrators of these fraudulent finance operations were fully aware of
what they were doing from the outset, and may have deliberately
ensured, in these cases, that their participants became co-conspirators
and would therefore become impotent to recover their funds, which the
perpetrators always intended to steal.
Their
evil intentions will have been based upon extensive experience of the
psychological reality that victims of financial Ponzi and Pyramid scams
often collapse into a state of permanent denial, unable to move beyond
the mental barrier that they have lost everything. This attitude is
typically associated with embarrassment at the fact that the victim has
been scammed, a state of mind akin to the humiliation of being mugged
or the victim of common theft.
What has been achieved to date as
a direct consequence of these exposures, though, is that life has been
made extremely uncomfortable for the professional and official sector
perpetrators of all categories of fraudulent finance, and will most
certainly become more uncomfortable day by day – as official
enforcement procedures, which grind slowly but surely, bring more and
more decisive pressure to bear on these snakes. Despite everything that
has had to be said above, this may still provide some minimal degree of
comfort, no doubt, for the victimised participants; but it may not
alleviate their problems or their suffering.
What
we can say with confidence is that the prevailing sense of pessimism in
the United States is misplaced. Perceptions are often slow to catch up
with reality. We are being bombarded with data which has almost no
bearing on the current environment, which can be summed up as follows:
the crooks are on the run, are being hounded day and night, have
nowhere to turn, did not anticipate what was about to hit them, and
have been caught completely unprepared for the onslaught.
S.E.C. ‘CORRUPTLY ENGAGED IN OWN ACCOUNT TRADING’
And
here is another exposure: the Securities and Exchange Commission –
still the chief securities market regulator, no less – is itself
apparently corrupt. For instance, it has failed to enforce its own
regulations, and has only (it appears) been galvanised into action very
recently, in response to the cacophony generated inter alia by our
reports. No-one has been impressed by Mr Cox's statements recently,
because the failure of the SEC to do its job properly has become widely
known.
The
SEC irresponsibly dismantled their own enforcement division, and to
make matters very much worse, have been engaged in trading, or allowing
insiders to trade, for their own account.
For what purpose?
The likelihood must be that SEC personnel have been trading for their
own personal enrichment, taking their cue from the Black House: the
nefarious principle being that if the President of the United States
and his most senior colleagues are content to exploit public office for
self-enrichment purposes, then what is to stop lesser officials doing
the same?
The fact that the Securities and Exchange
Commission, which exists for the spurpose of regulation only, has
reportedly branched out into participating in exotic money-making
programmes instead of concentrating on its job of regulating the
securities sector, provides us with a further indication of the extreme
decadence of the US financial system which can hardly hope to recover
unless such grotesque abuses are eliminated.
COUNTER-PROPOSALS FOR CLEANING UP THE MESS
It
is perfectly clear to anyone who is not sitting on their brains that
the so-called ‘Paulson’ Treasury proposals, a.k.a. the mish-mash of
half-baked notions served up by the President’s Working Group on
Financial Markets, is not fit for purpose and should be relegated to
the dustbin of history with immediate effect. It is further clear that
these messy proposals have actually exacerbated the crisis by
introducing new dimensions of uncertainty surrounding future US
Government policies, thereby further undermining confidence in an
environment so febrile that the entire edifice of fiat money cards has
been teetering on the verge of collapse anyway.
Given
the perverse effects of these proposals on financial market confidence,
we can legitimately go further, and accuse the Working Group of
irresponsible behaviour which is tantamount to the financial
criminality which the proposals are intended to obfuscate.
To
place consideration of the problems surrounding the
Government-Sponsored Enterprises in the ‘long-term reform category’
when, within months of our report on the subject last December, this
central dimension of the overall crisis blew up in the Working Group’s
faces, surely provides all who 'need to know' with sufficient evidence
of the Working Group’s incompetence, let alone its clearly mischievous
intent, to warrant the Working Group being closed down forthwith –
before it does any more damage, like the proverbial elephant in the
china shop.
Michael C. Cottrell, M.S., the securities
markets expert, has therefore prepared the following basic
recommendations, which should be substituted for the cack-handed and
extremely damaging false prospectus promulgated last March by the
disreputable President’s Working Group on Financial Markets, fronted by
this ‘Paulson’ fellow.
MR COTTRELL'S COUNTER-PROPOSALS ARE AS FOLLOWS:
(A)
Comprehensive funding of the necessary enforcement structures, which
must remain intact. The organisations most suited for this function
remain the Securities and Exchange Commission and the Federal Trade
Commission. Before summarising Mr Cottrell’s proposals, here are some
examples of what has happened when these regulators fail to do their
jobs properly, or at all:
(1) The Securities and Exchange
Commission (SEC): This entity must enforce its regulations with vigour,
in the context of the further reforms that Mr Cottrell recommends,
below:
The Chairman of the Senate Banking
Committee, Christopher Dodd, and Senator Jack Reed, have asked the
Government Accountability Office (formerly the Government Accounting
Office, GAO) to investigate why sanctions imposed by the SEC plunged by
51%, to $1.6 billion, in the regulator’s most recent fiscal year.
According to the SEC’s Annual Reports, it opened 15% fewer probes
during the same period, than in the preceding fiscal year (20).
For
instance, the Securities and Exchange Commission failed to enforce its
regulations in the case of American Business Financial Services, Inc.
(ABFS), located in Philadelphia, PA, which operated from 1988 until it
declared bankruptcy in January 2005.
This case is revealing in the context being considered here.
ABFS
financed its operations by selling its notes to the general public, by
means of newspaper advertisements and mass mailings, which promised
high interest yields. The notes it sold carried no collateral and were
not insured, so that they were worthless when ABFS declared bankruptcy
(21). More than 22,000 individual investors lost a total of
approximately $750 million. The bankruptcy trustee has filed suit
against Bear Stearns & Co., J. P. MorganChase & Co., Morgan
Stanley and Crédit Suisse, to recover monies lost when these
investment
banks allegedly allowed or enabled ABFS to overstate the value of
assets on its books (22).
ABFS
extended loans to borrowers burdened with poor credit, worth more than
$6.0 billion in the aggregate, which were then packaged for marketing
purposes, but which essentially represented securitised pools of
sub-prime loans. ABFS also secured cash from individual investors by
selling the investors uncollateralised notes via public offerings (23).
The
investment banks converted the sub-prime loans and uncollateralised
notes into ‘interest only strips’, or ‘residuals’ which represented
‘the right to receive future cash flows from securitised loans’ (24).
ABFS assigned to these securities a value much higher than their actual
worth because the falsification of these values made ABFS look more
financially sound than was in fact the case.
Specifically,
ABFS booked more than $500 million in ‘fictitious assets’ when the
investment banks allowed ABFS to underestimate early repayments of the
'sub-prime' loans. ABFS assumed its had a 23% prepayment rate when, in
reality, Crédit Suisse had questioned the percentage as being
too low.
In fact, repayment rates were running at between 30% and 35% of total
such ‘assets’ (25) .
Wall Street investment banks finally
stopped securitising AFBS sub-prime loans when one investment bank
received a letter dated 15th May 2003, addressed to the Federal Bureau
of Investigation (FBI) and the SEC asking: ‘Who is protecting these
(AFBS) investors?’
Notwithstanding this state of affairs, the
Securities and Exchange Commission did not launch an investigation into
the behaviour of ABFS until 2004, when ABFS asked for SEC approval to
enable it to make another public offering (26). In this, as in so many
other instances, the US Securities and Exchange Commission simply
failed to enforce its own regulations.
We have summarised
these regulations in our reports since 2006, in case this fact had
escaped the SEC’s notice. It hasn’t escaped the notice of the financial
community generally, so we are entitled to ask why the Securities and
Exchange Commission appears to have been an exception.
The SEC
regulations of specific relevance to these issues that NEED TO BE
ENFORCED include the following [see also the usual Annex at the end of
this report].
These details have been published here for at least 18++ months, so as
to emphasis the chronic necessity of substituting the Rule of Law for
the Law of the Jungle:
• NASD Rule 3120, et al.
• NASD Rule 2330, et al
• NASD Conduct Rules 2110 and 3040
• NASD Conduct Rules 2110 and IM-2110-1
• NASD Conduct Rules 2110 and SEC Rule
15c3-1
• NASD Conduct Rules 2110 and 3110
• SEC Rules 17a-3 and 17a-4
• NASD Conduct Rules 2110 and Procedural
Rule 8210
• NASD Conduct Rules 2110 and 2330 and
IM-2330
• NASD Conduct Rules 2110 and IM-2110-5
• NASD Systems and Programme Rules 6950
through 6957
(2) Federal Trade Commission: This Government structure has authority
to investigate fraudulent transactions in all markets.
According
to a plea bargain agreement announced on 8th April 2008, a former Board
Member at the New York Mercantile Exchange pleaded guilty to two felony
counts relating to illegal natural gas trading. Mr Steven Karvellas,
aged 48, made trades and then waited to watch how they turned out
before assigning the trades either to his own account or to his
client’s account – an abuse referred to as ‘trading ahead of the
customer’, which is a violation of the SEC’s Fair Dealing With Customer
rules. Karvellas was a floor Exchange Board Member of the publicly
traded Nymex Holdings, Inc., and indeed headed up its compliance review
committee when the illegal trades took place (27).
Under the
supervision of the Commodity Futures Trading Commission (CFTC), floor
brokers such as Mr Karvellas can operate both as broker for customers
and trade for own account operations. This practice is referred to as
the ‘dual trader’ mode, with the floor broker under an obligation to
act at all times in the customer’s best interest, a responsibility that
entails an obligation upon the broker to seek the best possible prices
for the customer 28 .
Ironically
(perhaps not, since we are of course dealing with the familiar
double-mindedness here), in a letter addressed in 2002 to Nymex
Holdings members as part of his campaign for re-election to the Board,
Mr Karvellas opined that ‘the shocking collapse of Enron indicates that
our Exchange does wear a white hat in the financial world. We
illustrate how markets should operate, honestly and with openness and
transparency that gains the public’s trust’ (29).
In January
2008, a Grand Jury subpoenaed a five-year-old trading ticket related to
this investigation and to Mr Steven Karvellas, who pleaded guilty to
tampering with physical evidence by ordering a subordinate to destroy
the subpoenaed trading ticket (30).
Nymex, which has been or is
currently being acquired by the Chicago Mercantile Exchange (CME,
Inc.), and other floor exchanges, have been financially hurt by the
emergence of electronic trading, and have attempted to reduce costs and
to speed up the 'open-outcry' process [see Glossary] (31).
But
floor trading remains vulnerable to manipulation: for instance, in
2005, 15 traders at the New York Stock Exchange (NYSE) were indicted on
charges of cheating investors. Although many of these traders actually
won their criminal cases, the Exchange realised that it had to ‘do
something’, and upgraded its surveillance systems at a cost of about
$20 million (32).
These examples, which could be replicated here
ad nauseam, illustrate the absolute necessity for a regulatory
régime
that is underpinned by enforcement, which must be implemented without
fear or favour at all times – so that everyone participating in the
financial markets is aware of the severe consequences of any breach of
the rules and regulations.
Talk
of operating on the basis of relatavist ‘principles’ is not only
irresponsible and unprofessional: it encourages the misplaced belief
among the easily swayed and the corrupt, that the ‘way forward’ need
not include enforcement as conceived in the 1930s, so that everyone can
feel comfortable and at ease – a recipe for the proliferation of
fraudulent finance on an open-ended basis.
Moreover it is
crystal clear that the dishonesty, hesitation and the sheer confusion
surrounding the ‘Paulson’ proposals have severely exacerbated a fragile
situation and the crisis of confidence which the criminal incompetents
in charge of US financial affairs have never intended, on the basis of
the massive evidence of their ongoing corruption, should be addressed
in an orderly fashion, since their agenda has all along diverged from
the public interest.
Almost as though it had suddenly woken up
from a long slumber, the SEC was reported to have launched a probe on
13th July 2008 into the manipulation of stock prices through the
spreading of false rumours, focusing on compliance controls which are
supposed to be applied by traders and investment houses. This
initiative appeared to mimic a similar attempt by the UK Financial
Services Authority FSA) in London, to crack down on rumour-mongering
and short-selling in the UK market following the plunge in the shares
of HBOS (Halifax Bank of Scotland) last March.
The
FSA was unsuccessful in its search, suggesting that the SEC’s response
represents a belated cosmetic attempt to be seen to be ‘doing
something’, since the SEC must certainly be aware of the FSA’s failed
investigation. However nothing that the US regulator does now, with the
benefit of any hindsight and with the fraudulent prospects implied by
the Treasury’s proposals hanging over its head, can make up for its
past failure to enforce its own regulations – as a consequence of which
fraudulent securities operations/scams have assumed colossal and, as we
have been observing, catastrophic proportions, in recent years.
The
SEC's failure and dereliction of duty is no reason for abandoning the
enforcement approach in favour of a contrived, weak ‘principles-based’
approach. On the contrary, what remains essential is proper and
rigorous enforcement of appropriate regulations.
(B) Mr Cottrell insists that the following structure and disciplines
should be created and imposed:
Office of Inspector General for Financial Markets Compliance (OFMC):
A
new regulatory entity with the function described by its title should
be established by Statute, who would be required to report directly to
the Chairman and ranking Member(s) of the following US Congressional
Committees, who would be considered to be their superiors (Bosses):
• The US Senate Financial Services
Committee.
• The US House of Representatives’
Financial Services Committee.
All
management and field personnel employed by the Office of the Inspector
General for Financial Markets would need to be fully trained and
qualified compliance officers. Specifically:
•
They must be field-tested and recognised as licensed compliance
officers, and they must all be licensed under the following
régimes:
(1)
Financial Industry Regulatory Authority (created in July 2007 through
consolidation of the NASD (National Association of Securities Dealers)
and the NYSE (the New York Stock Exchange) member regulation
régimes
[see also: Glossary]) with respect to the following examinations:
• Series 24 [General Securities Principal];
• Series 27 [Financial and Operations
Principal];
• Series 4 [Registered Options Principal];
• Series 51 [Municipal Fund Securities
Principal]; and:
• Series 53 [Municipal Securities
Principal].
(2) They must be licensed members of NYSE Member firms.
(3) They must be licensed as US Treasury compliance officers.
Nothing
short of the deployment of management and field personnel qualified to
these demanding industry standards will suffice. Because this is so, it
is self-evident that the half-baked, confused and deliberately
fragmentary proposals put forward by the President’s Working Group,
which are intended to OBFUSCATE the situation and to lodge total power
in the hands of the Presidency by default, with no checks and balances
at all, represent a fraudulent prospectus, which should be consigned to
oblivion forthwith. NO FURTHER CONSIDERATION SHOULD BE GIVEN TO THEM.
(C ) Michael Cottrell further demands (recommends is
much too weak a word here) that The Glass-Steagall Act of 1933 must be
re-enacted in order to re-establish once and for all the very stringent
regulatory requirements enshrined in the 1933 and 1934 Securities Acts.
In the same context, and in parallel, the divisive
Gramm-Leach-Biley Act – written by lobbyists for the banking sector –
must be repealed.
(D) Regulation of Credit and Debt Derivatives:
An
essential further reform will be the development of overdue new
securities regulations specifically focused on the creation, use and
risk limitation of structured instrument vehicles (credit and debt
derivatives). These new regulations would be enforced by the Securities
and Exchange Commission (and the Federal Trade Commission, as
appropriate), and of course subject to compliance oversight by the
trained personnel of the newly established Office of the Inspector
General for Financial Markets Compliance [see above].
(E)
Finally, the revitalised regulatory regime for all US financial markets
will be seen to be entirely rules-based, with all ‘legacy’
‘principles-based’ thinking and language expunged from the system,
which must be backed up by rigorous enforcement applied impartially and
across the board.
SEC, FTA AND OFMC management and field
personnel would be well remunerated, but at the same time subject to
specified and appropriately severe sanctions in cases of official
corruption within these structures. One reason why the regulations have
not been properly enforced, or applied at all, in recent years is that
the existing agencies, and/or certain personnel within them, have been
corrupted. Fish rot from the head.
CONCLUSION
This far
simpler regulatory régime requires a minimum of new legislation,
building upon existing regulatory structures and experience, with the
introduction of precisely ONE new US agency (the OFMC), compared with
SEVEN new burdensome, confusing, bureaucratic, intentionally
overlapping, obfuscatory agencies as proposed by the Working Group on
Financial Markets (33).
Therefore,
these straightforward reforms, instead of being spurious and
deliberately opaque and spread out over an indeterminate timeframe,
exacerbated by the carrying out of vague ‘studies’ as specified in the
‘Paulson’ proposals, could be implemented within a very limited
timeframe at an early stage of the next Presidency. Establishing ONE
new agency instead of SEVEN should, of itself, provide a powerful
incentive for adopting Mr Cottrell’s straightforward proposals and for
rejecting the hugely expensive and mischievous dog’s dinner put forward
by the Working Group.
Such an initiative would do more to
restore confidence in the battered US financial markets than
innumerable further confused announcements by the ‘Paulson’ Treasury
and other intermeddlers, and would place the incoming Administration on
a sound financial market footing, without which everything it touches
will disintegrate as has happened under the criminalised Bush II
Presidency.
In
short, these are straightforward, practical reforms which can be
legislated for and implemented quickly. They can also be publicised
with advantage ahead of their implementation, so that the US and world
financial markets are made appropriately aware of the smack of firm,
sound and decisive governance, with all that this approach will imply
for the restoration of confidence in the battered financial markets in
the United States and worldwide. (34).
Notes and References:
1. Howard Abadinsky, ‘Organized Crime’, 6th Edition, Belmont,
Wadsworth Thompson learning, 2000, pages 49-58
2. Gary Giroux, Ph. D., ‘A Short History of Accounting and Business’,
available at: hyyp://acct.tamu.edu/giroux/financial.html (internet),
page 1.
3. Giroux, op. cit., page 1.
4. Giroux, op. cit., page 2.
5.
Michael C. Cottrell, M.S., ‘Elite Power & Capital Markets’ thesis
submitted in partial fulfillment of the requirements for Master of
Science, Mercyhurst College, 2001, page 33.
6. Cottrell, op. cit., page 33.
7. Cottrell, op. cit., page 33.
8.
John H Hollands, Acting Director, Investment Company Division,
Securities and Exchange Commission (SEC), ‘Government Regulation of The
Distribution of Investment Company Shares’, dated 8th October 1941,
page 2.
9. Hollands, op. cit., page 2.
10. Hollands, op. cit., page 2.
11. Hollands, op. cit., page 2.
12. Hollands, op. cit., page 2.
13. Hollands, op. cit., page 2.
14. ‘Treasury’s Summary of Regulatory Proposal’, The New York Times
Company, 29th March 2008, available at: http://www.nytimes.com
(Internet).
15. Kara Scannell and Michael R Crittenden, ‘Treasury’s Blueprint: the
View from Washington’,
The Wall Street Journal, 31st March 2008, Section A, page 15.
16.
Jesse Westbrook, ‘SEC Overhaul Bid by Bush Condemned by SEC Chairman
(Update 1)’, New York, Bloomberg, L.P., 8th April 2008, available at: http://www.bloomberg.com
(Internet), page 1.
17. Westbrook, op. cit.,, page 1.
18. Westbrook, op. cit., page 2.
19. Westbrook, op. cit., page 2.
20. Westbrook, op. cit., page 1.
21. Steve Strecklow, ‘Subprime Lender’s Failure Sparks Lawsuit Against
Wall Street Banks’,
The Wall Street Journal, 9th April 2008, Section A, page 1.
22. Strecklow, op. cit., page A1.
23. Strecklow, op. cit., page A14.
24. Strecklow, op. cit., page A14.
25. Strecklow, op. cit., page A14.
26. Strecklow, op. cit., page A14.
27. Aaron Lucchetti and Gregory Meyer, ‘Dual Traders Under Fire’, The
Wall Street Journal,
9th April 2008, Section C, page 1.
28. Lucchetti and Meyer, op. cit., page C18.
29. Lucchetti and Meyer, op. cit., page C1.
30. Lucchetti and Meyer, op. cit., page C18.
31. Lucchetti and Meyer, op. cit., page C18.
32. Lucchetti and Meyer, op. cit., page C18.
33.
The seven new agencies recommended by the President’s Working Group on
Financial Markets, which of course obfuscate the regulatory environment
out to infinity, with intent, are: Mortgage Origination Commission;
Market Stability Regulator; Prudential Financial Regulatory Agency;
Government-Sponsored Enterprises Regulator; Conduct of Business
Regulatory Agency; Federal Insurance Guarantee Corporation; and:
Corporate Finance Regulator.
34. The one dimension of Mr
Cottrell's practical reforms that will require an appropriate lead-time
concerns the recruitment of the necessary trained and licensed
management and field compliance personnel for the new Office of the
Inspector General for Financial Markets Compliance (OFMC).
In
addition to the need to remunerate such expert personnel sufficiently
well not least in order to minimise the temptation to succumb to
bribery (which has bedeviled enforcement of late), financial
compensation must reflect the expertise of recruited staff and the
exceptional importance of their responsibilities. At the same time, it
will not be necessary to recruit a large compliance staff. A tight ship
is recommended, given that a modest staff can be motivated to higher
levels of achievement, especially since the recommended ethos would be
one of sober determination to stamp out market abuses and corruption
generally. Despite the ravages inflicted by the permissive financial
market environment in recent years, it is believed that the pool of
such qualified experts who are keen to enforce the Rule of Law in the
United States remains of sizeable proportions.
• MEMORANDUM:
SEPARATE DISCUSSION OF THE 'PAULSON' END-YEAR 'DECEPTION OPERATION'
On
31st December 2007, we and several other prominent monitors and
contacts received disparate information about shootings that were
reported to have taken place on 28th/29th December 2007. Among those
reported to have been shot was Henry M. Paulson Jr., the US Treasury
Secretary, who was alleged to be in a critical condition following that
event.
These reports followed verified information that
Paulson had attempted to blackmail the President of the United States,
as we had reported earlier. On 2nd January 2008, the same sources
reported that ‘Paulson’ had died of his wounds. Given the quality of
the sources for this information (see below), the Editor took the
decision to publicise these events, in a report dated 2nd January 2008.
For
the next seven days, the Editor was bombarded with hate emails from
people who knew better, for a total of about 70 such emails in all. On
9th January 2008, the Editor published a website report furnishing
precise details of the provenance of the reports about the shootings,
complete with the dates and precise times when the relevant information
was received. The report also cited sources by name, including one
well-known US Ambassador (Bennett) and a retired Governor of the
Federal Reserve Board (Meyer). Given the extreme detail that we
published on 9th January 2008, the email bombardment of the Editor of
this service ceased abruptly, indicating to our forensic advisers that
this was a coordinated operation intended to try to discredit not only
this service, but also several other Fifth Estate outlets that had been
carrying variants of the same information.
In other words,
faced with our detailed provenance information, the counterintelligence
diversion, redirection, obfuscation and discrediting operatives could
not continue with it, and so had to ‘pull’ their operation. Since these
events, further information on this subject has been assembled, and the
Editor has routinely cited the name ‘Paulson’ in between quotation
marks.
•
Shortly after these events, we and others were advised that an attempt
had been made on the life of Vice President Cheney, also by shooting.
Since we and others know, from UK sources, about episodes (in detail)
of extreme violence that have plagued the highest level of the United
States’ criminal Federal Government under Bush II, this caused no
surprise. But the Editor established that Cheney had only one diary
appointment for a prolonged period, namely from 23rd December 2007 to
15th January 2008, when he was scheduled to meet the Prime Minister of
Finland.
We waited until after 15th January and then
contacted the Finnish Embassy in London to establish whether the
Finnish Prime Minister had indeed been received by Cheney on 15th
January. On 19th January, the Finnish Press Counselor in London
telephoned the Editor to confirm that the meeting had taken place. It
is now believed by several analysts that in both instances of alleged
shootings a ‘double’ may have been the victim. Uniquely in the United
States, where violence at high levels is quite commonplace, these
holders of the US highest offices are often equipped with ‘doubles’ who
are recruited by a special back-up unit and held ‘on the books’ against
all emergencies. They are assisted by selected make-up artists from
Hollywood who are controlled by the CIA.
•
At a recent 'impromptu briefing' here (in the English countryside), the
Editor was given a most encouraging assessment about the impact of our
reports on what Lenin called ‘the unfolding of events’, and was advised
that the ‘Paulson’ episode had not affected our credibility, both
because of the reports’ general accuracy and the relevance of their
assessments. These comments were accompanied by the observation that
‘it is nothing to worry about because EVERYONE HAS BEEN AND CONTINUES
TO BE LIED TO’ by these people and by their criminal intelligence
associates.
•
This assessment coincided with our own view of the matter. It is to be
observed that no official denial of anything that we published about
‘Paulson’, has ever materialised, and that it has been confirmed that
US Treasury officials have been overheard referring to ‘Paulson’ as
‘the double’. Whether the real Paulson was wounded and later recovered,
or a double was murdered, is not yet known. Nor has any explanation
been forthcoming about the macabre videos of sessions of the Bush
cabinet in which a motionless ‘Paulson’ figure, thought at the time to
have been a cadaver, was on display. We have a new 'take' on this,
immediately below. It is this:
•
Given the lengths to which the relentlessly criminalised US
counterintelligence disinformation community are known to go to
deceive, in order to cover up their crimes (which is their full-time
preoccupation), it is well within the bounds of possibility that the
macabre video was itself part of the deception operation – the overall
purpose of which will have been to seek to discredit those Fifth Estate
outlets that have consistently exposed Paulson as a recalcitrant
criminalist operative, the orchestrator of colossal financial thievery
and scamming operations, a de facto financier of terrorism (which
FinCEN, a bureau within the Treasury that this ‘Paulson’ controls is
dedicated to rooting out), and, in short, a criminal who should be
arrested and subjected to the full rigour of the Rule of Law. The
overall purpose of this counterintelligence operation would have been
to try to discredit 'Paulson's 'main enemies' (i.e., this service!) by
embedding the idea that 'Paulson' had been shot, and then parading him
in public later, as though nothing had happened. The same games were
and are being played in respect of Vice President und
Unterreichsführer
Cheney.
•
On the assumption that, despite all of the foregoing, we may still be
dealing with the ‘real’ Hank Paulson, this man’s notorious arrogance
would be likely to have blinded him to the reality that any elaborate
deception operation associated with the shootings episode over the turn
of the year did NOT succeed, as he may recklessly believe, in
discrediting the Fifth Estate outlets, including this service, which
have identified this crook for what he is. On the contrary, the man has
been well and truly cornered, and is running around in ever decreasing
circles as he seeks to extricate himself from the hell of his own
making. To do this he will stoop to anything. For instance:
•
It is likely that US Congressional figures seen as a threat to
'Paulson' are in the process of being blackmailed. One way this is
being done is to expose the 'Countrywide sweetheart deals' that were
extended (to the tune of some $400 million) to prominent members of the
Legislative Branch on favourable terms. Moreover, all of a sudden, the
Countrywide executive who did the paperwork has surfaced (in Conde
Nast's 'Portfolio Magazine') to assert that these US Congressmen all
knew perfectly well that the mortgages of which they were in receipt
were being made available to them on 'special terms' (and by
implication were therefore not aware that they were victims of a
'sting' operation perpetrated with malicious intent). The purpose of
this operation? To stall any moves to have Paulson impeached for his
crimes and brought finally, at long last, to justice.
GLOSSARY OF U.S. FINANCIAL MARKET DEFINITIONS
References
only entries specifically germane to the market issues purportedly
addressed by the President’s Working Group on Financial Markets, and
relevant to Mr Cottrell’s alternative proposal:
• Annunzio-Wylie Anti-Money Laundering Act
of 1992:
This
legislation enlarged the definition of ‘financial transaction’, and
made money-transmitting, without reporting, a crime. Source: Howard
Abadinsky, ‘Organized Crime’, 6th Edition, Belmont: Wadsworth/ Thompson
Learning, Inc., 2000, page 411.
• Anti-Drug Abuse Act of 1988:
This
law detailed undercover operations involving money-laundering. Source:
John Madinger and Sydney A. Zalopany, ‘Money Laundering: A Guide for
Criminal Investigators’, New York: CRC Press, LLC, 1999, page 43.
• Anti-Trust Laws:
US Federal legislation designed to prevent monopolies, cartelisation
and restraint of trade. Landmark statutes include:
(1):
Sherman Anti-Trust Act of 1890, which prohibited actions or contracts
tending to create a monopoly and initiated an era of trust-busting;
(2):
Clayton Anti-Trust Act of 1914, passed as an amendment to the Sherman
Act, which dealt with local price discrimination, interlocking
directorates, holding company activities and restraint of trade; and:
(3):
Federal Trade Commission Act of 1914, which created the Federal Trade
Commission (FTC), with the power to conduct investigations and the
power to issue orders preventing unfair practices in interstate
commerce. Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of
Finance and Investment Terms’, 7th Ed., Happauge: Barron’s Educational
Series, 2006, s.v. ‘Antitrust Laws’.
•Bailout Bill:
See Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA).
• Bank Holding Company Act of 1956:
This
act brought, for the first time, holding companies under the banking
regulations, and provided that the holding company was subject to the
same regulation and examinations as member banks. A Holding Company is
a company that exercises control over another via voting shares.
Organisation as a holding company allows a banking firm to engage in
other non-deposit taking activities, such as discount brokerage
operations, securities underwriting, and general public or industrial
leasing.
Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power
& Capital Markets’, thesis submitted in partial fulfillment of the
requirements for the Degree of Master of Science, The Administration of
Justice Department, Mercyhurst College, Erie, PA 13th February 2002;
Munn, ‘Encyclopedia of Banking and Finance’, page 84; Fitch, Dictionary
of Banking Terms, page 225. See: Financial Holding Company.
• Bank Holding Company Act Amendments of
1970:
This
legislation expanded the Bank Holding Company Act of 1956 by
legislating for a new Holding Company that controls only one bank, and
limiting the permissible activities of these entities to those ‘closely
related to banking’. The effect of these amendments was to permit
one-bank holding companies, such as Bank of New York Company, Inc., to
become conglomerates with subsidiaries in non-banking fields without
regulation. Sources: Mr Michael C. Cottrell, B.A., M.S., ‘Elite Power
& Capital Markets’, op. cit., thesis submitted in partial
fulfillment of the requirements for the Degree of Master of Science,
Administration of Justice Department, Mercyhurst College, Erie, PA, on
13th February 2002; Munn, ‘Encyclopedia of Banking and Finance’, page
87; Thomas A. Eder, Thompson Desktop Financial Directory, Volume 3,
Skokie: Thompson Financial Publishing, Inc., 1993, page 252. See:
Financial Holding Company.
• Banking Act of 1935:
This
legislation implemented changes to the Federal Reserve Board,
prohibiting any banker from serving on the Board of Directors, or being
an officer or employee, of more than two institutions. Sources: Michael
C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, thesis
submitted in partial fulfillment of the requirements for the Degree of
Master of Science, The Administration of Justice Department, Mercyhurst
College, Erie, PA, 13th February 2002; Munn, ‘Encyclopedia of Banking
and Finance’, page 89. See: Financial Holding Company.
• Bank Secrecy Act of 1970:
This
legislation, the formal title of which is the Currency and Foreign
Transactions Reporting Act of 1970, extended to the Secretary of the US
Treasury great flexibility in respect of official definitions of
‘monetary instruments’, which could now all of a sudden include ‘coins
and currency of a foreign country, travelers’ checks, bearer negotiable
instruments, bearer investment securities, stock on which title is
passed on delivery’. The ostensible intention of this law was to deter
criminal activity in order to assist criminal investigations by
requiring all financial institutions to report large cash transactions
and the transportation of such instruments initially exceeding $5,000,
(now, amounts that ein excess of $10,000). Sources: Michael C.
Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, thesis
submitted in partial fulfillment of the requirements for the Degree of
Master of Science, The Administration of Justice Department, Mercyhurst
College, Erie, PA, 13th February 2002; See also Munn, ‘Encyclopedia of
Banking and Finance’, p.109; John Madinger, Sydney A. Zalopany, ‘Money
Laundering: A Guide for Criminal Investigators’, New York, CRC Press,
LLC, 1999, page 43.
• Basel-II:
The
Bank for International Settlements (BIS), located in Basel,
Switzerland, has established and provides the Secretariat for the Basel
Committee on Banking Supervision, which consists of senior
representatives of bank supervisory authorities and central banks from
Belgium, Canada, France, Germany, Italy, Japan, Luxembourg,
Netherlands, Spain, Sweden, Switzerland, the United Kingdom and the
United States. Basel-II is the comprehensive updated and agreed version
of ‘International Convergence of Capital Management and Capital
Standards’ revising the 1988, 1996 and 2005 texts to secure an
international standard on revisions to supervisory regulations
governing the capital adequacy of internationally active banks. Source.
and for further information: Basel Committee on Banking Supervision,
‘International Convergence of Capital Measurement and Capital
Standards’, Basel, Press & Communications, 2004, available at: http://www.bis.org
(Internet).
• Bucket Shop:
An
illegal brokerage firm which accepts orders from customers but does not
execute them right away, as Securities and Exchange Commission (SEC)
and Commodity Futures Trading Commission (CFTC) regulations require.
Bucket shop brokers confirm the price that the customer asked for, but
in fact make the trade at a time considered to be advantageous to the
broker, whose profit is the difference between the two prices.
Sometimes bucket shops neglect to fill the customer’s order and just
pocket the money. Main source: John Downes and Jordan Elliot Goodman,
‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge:
Barron’s Educational Series, Inc., 2006, s.v. ‘Bucket Shop’.
• Clayton Anti-Trust Act of 1914:
This
law was passed in order to increase competition in business, by
restricting the corporate activity of acquiring other competing
corporations or the practice of interlocking directorships. Sources:
Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’,
thesis submitted in partial fulfillment of the requirements for the
Degree of Master of Science, The Administration of Justice Department,
Mercyhurst College, Erie, PA, 13th February 2002; additionally: Jack C
Plano and Milton Greenberg, ‘The American Political Dictionary’, 4th
Edition, Hinsdale, The Dryden Press, 1976, page 328. See: Anti-Trust
Laws.
• Clear:
(a): In banking: Collection of funds on which a cheque (check) is
drawn, and payment of these funds to the holder of the check.
(b):
In the securities sector: Comparison of the details of a transaction
between brokers prior to settlement; final exchange of securities for
cash on delivery. Source: John Downes and Jordan Elliot Goodman,
‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge:
Barron’s Educational Series, Inc., 2006, s.v. ‘Clear’.
• Commodity Futures Trading Commission
(CTFC):
An
independent agency created by Congress in 1974 which is responsible for
regulating the US commodity futures and options markets. The CFTC is
responsible for ensuring the integrity of the commodity futures and
options markets everywhere, and for protecting market participants
against manipulation, abusive trade practices, and fraudulent
operations. Primary source: John Downes and Jordan Elliot Goodman,
‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge:
Barron’s Educational Series, Inc., 2006, s.v. ‘CFTC’.
• Commodity Futures Contract:
A
Futures Contract that is tied to the price movements of a particular
commodity. This arrangement enables contract buyers to purchase a
specific amount of a listed commodity at a specified price on a
particular date in the future. The price of the contract in question is
determined using the ‘open outcry’ system on the floor of a US
commodity exchange such as the Chicago Board of Trade or the Commodity
Exchange in New York. Commodity Futures Contracts are typically based
upon (a) meats (cattle and pork bellies); (b) grains (corn, oats,
soybeans and wheat); (c) key metals (gold, silver and platinum); and
energy products (heating oil, natural gas, and crude oil). Source: John
Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment
Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006,
s.v. ‘Commodity Futures Contract’.
• Commercial Bank:
A
State or National Bank owned by stockholders that accepts demand
deposits, makes commercial and industrial loans, and performs other
banking services for the public. The phrase Full Service Bank covers
banks that, as is the case with many commercial banks, supply trust
services, foreign exchange, trade financing and international banking
services. Source: Thomas P. Fitch, ‘Dictionary of Banking Terms’, 3rd
Ed., Happauge: Barron’s Educational Series, Inc., 1997, c.v. ‘Comm.
Bank’.
• Compliance Department:
A
department typically established by brokers and all US organised stock
exchanges to oversee market activity and make sure that trading and
other activities comply (in the United States) with Securities and
Exchange Commission (SEC) and specific Exchange regulations. A company
that does not adhere to the rules can be delisted. And a trader or
brokerage firm that violates the rules can be barred from trading. Main
source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance
and Investment Terms’, 7th Edition, Happauge: Barron’s Educational
Series, Inc., 2006, s.v. ‘Compliance Department’.
• Compliance Examination:
Periodic
bank examination by a Federal regulatory agency to ensure compliance
with consumer protection regulations, such as the Community
Reinvestment Act, the Equal Credit Opportunity Act and the Truth in
Lending Act. Financial institutions are required by law to issue
reports at regular intervals – for example, an annual statement of
their mortgage lending in the lender’s market area. Compliance
examinations are intended to uncover any hidden violations of consumer
protection regulations so that remedial action can be taken. Source:
Thomas P. Fitch, ‘Dictionary of Banking Terms’, 3rd Ed., Happauge:
Barron’s Educational Series, Inc., 1997, c.v. ‘Compliance Examination’.
•Consumer Credit Protection Act of 1968:
See: Truth in Lending Act.
•
Criminalism: A new word invented by the Editor of this service, meaning
the perpetration and exploitation of organised criminal operations in
the interests of political strategy and/or one or more secret agendas;
noun, ‘criminalist’, an operative or other cadre who engages in
criminalist activities and assumes that he is protected and can
therefore continue such activities beyond and above the reach of the
Rule of Law. The Editor first used this word in the context of Soviet
criminal operations, as exposed in Soviet Analyst,
and has since extended it to cover the American variant.
• Currency and Foreign Transactions
Reporting Act of 1970: See: Bank Secrecy Act.
• Debenture:
A
certificate or bond acknowledging a debt on which fixed interest is
being paid. Source: Oxford Senior Dictionary, Oxford University Press,
1984.
• Depository Institutional Deregulation
and Monetary Control Act of 1980:
This
law gave the Federal Reserve Board tighter control over monetary
policy. It also required the Fed to assign examiners to examine foreign
operations of State member banks, and prohibited the Fed from rejecting
any application from a one-bank holding company on the basis of a stock
loan, unless that applicant’s financial arrangements were deemed to be
unsatisfactory. The applications were to be judged on a case-by-case
basis. The Act further proclaimed that collateral was no longer
required to support Federal Reserve notes held in the vaults of the
Federal Reserve banks, and that the kinds of eligible collateral for
Federal Reserve notes were expanded to include those of foreign
governments and/or agency or any other 'asset' purchasable by Federal
Reserve Banks. Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power
& Capital Markets’, thesis submitted in partial fulfillment of the
requirements for the Degree of Master of Science, The Administration of
Justice Department, Mercyhurst College, Erie, PA, 13th February 2002;
Munn, ‘Encyclopedia of Banking and Finance’, pages 252 and 253.
• Derivative Instrument (Derivative):
A
contract the value of which is determined from publicly traded
securities, interest rates, currency exchange rates, or market indices.
Derivative Contracts are often ostensibly used for the purpose of
‘protecting’ assets against changes in value. Types of derivatives
include the following:
(1): Over-the-counter derivative
'products', such as currency swaps and interest rate swaps, which are
privately negotiated bilateral agreements, transacted OFF the organised
US exchanges. In the currency markets, forward delivery contracts allow
traders to lock in current prices when buying and selling baskets of
currencies for future delivery.
(2):
Derivative securities: Bond-like securities created when pools of loans
and mortgages are packaged and sold to investors. In the hands of
knowledgeable users, derivative contracts have many applications in the
floating interest environment, such as managing currency and interest
rate risk, or locking financing costs in by swapping floating rate debt
for fixed-rate debt.
Derivates gained public notoriety in the
1990s when a number of corporations and municipalities embarked upon
the use of derivatives for speculative purposes (known as ‘taking a
view on the market’), and suffered large losses when interest rates
moved against them. Source: Thomas P. Fitch, ‘Dictionary of Banking
Terms’, 3rd Edition, Happauge: Barron’s Educational Series, Inc., 1997,
c.v. ‘Derivative’.
• Disclosure:
Release
by listed companies of all information, both positive and negative,
that might bear on an investment decision, as required by the
Securities and Exchange Commission (SEC) and the stock exchanges.
Source: Thomas P. Fitch, ‘Dictionary of Banking Terms’, 3rd Edition,
Happauge: Barron’s Educational Series, Inc., 1997, c.v. ‘Compliance
Examination’.
• Edge Act:
Passed
in December 1919, the Edge Act, under the heading ‘Banking Corporations
Authorized to Do Foreign Banking Business’, permitted the establishment
of foreign banking corporations that aided in the financing of foreign
trade. This allowed US banks to establish branches in foreign countries
to accommodate American corporations engaged in foreign trade
transactions. Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power
& Capital Markets’, his thesis submitted in partial fulfillment of
the requirements for the Degree of Master of Science (M.S.), The
Administration of Justice Department, Mercyhurst College, 13th February
2002; Munn, ‘Encyclopedia of Banking and Finance’, page 289.
• Equal Credit Opportunity Act of 1974:
Monitored
by the Federal Trade Commission (FTA), this legislation seeks to ensure
that all US consumers are given an equal chance to obtain credit. The
Act prohibits discrimination in the granting of credit on the basis of
race, colour, religion, national origin, sex, marital status, age,
receipt of income from any public assistance scheme, and good faith
exercise of any rights under consumer protection legislation. The US
Department of Justice may file a lawsuit under the Act where a pattern
or practice of discrimination appears to exist. For further
information, see: http://www.usdoj.gov/crt/housing/housing_ecoa.htm
(Internet).
• Emergency Banking Relief Act:
Passed
on 9th March 1933, this Act was triggered following the national
liquidity crisis that followed the stock market crash of 29th October
1929 and the extended ‘bank holiday’ of the 4th-12th March 1933. The
bank holiday closed all banks nation-wide for one week by order of
President Franklin D Roosevelt, to control the wave of banking failures
and to restore confidence in the United States’ battered banking
system. This legislation permitted banks to issue new stock, with the
new stock exempt from subjecting the holder to be liable for the bank’s
previously issued stock. The Act also authorised the issuance of US
Federal Reserve Bank notes that were redeemable in lawful money in the
United States, as 100% obligations of the Federal Government. Sources:
Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’,
thesis submitted in partial fulfillment of the requirements for the
Degree of Master of Science, Administration of Justice Department, at
Mercyhurst College, Erie, PA, 13th February 2002; Moore, 'The Federal
Reserve System', pages 81-82; Fitch, ‘Dictionary of Banking Terms’,
pages 46 and 83.
•
Enronisation: A new word coined by the Editor of this service, meaning
‘hollowing out’. Verb: ‘to enronise’; noun; 'enronist', a financial
criminal who 'hollows out' a targeted entity. The essence of the
destruction of Enron was that executives and directors formed private
partnerships and stole or diverted financial assets or proceeds from
the corporation into offshore bank accounts of the partnerships. These
diverted monies were then systematically leveraged and hypothecated
into high-yield investment and other programs which wound up being far
more profitable than Enron itself. Such illegitimate financial
arrangements proliferated, so that the original enterprise, Enron, was
‘hollowed out’, while the illicit partnerships prospered, with 100% of
the proceeds being held undeclared and untaxed offshore. 'Enronisation'
strategies are applied not only to companies, but also to whole
countries (e.g., Ireland, Zimbabwe, Iceland, probably also Spain
(forthcoming)).
• Federal Reserve Act of 1913:
The
purpose of this legislation, according to the precise language of the
Act, was ‘to provide for the establishment of US Federal Reserve Banks,
to furnish an elastic currency, to afford means of rediscounting
commercial paper, to establish a more effective supervision of banking
in the United States and for other purposes’. The Act established two
basic structures:
(1): A central body known as the Federal Reserve Board; and:
(2):
Not more than 12 Reserve banks located throughout the country. The
Federal Reserve Board is comprised of seven members appointed by the
President of the United States and confirmed by the US Senate for
14-year terms. Sources: Mr Michael C. Cottrell, B.A., M.S., ‘Elite
Power & Capital Markets’, his thesis submitted in partial
fulfillment of the requirements for the Degree of Master of Science,
Administration of Justice Department, Mercyhurst College, Erie, PA, on
13th February 2002 Carl H. Moore, The Federal Reserve System,
Jefferson: McFarland & Company, Inc., 1990, page 7; Fitch,
Dictionary of Banking Terms, page 46.
• Federal Trade Commission Act of 1914:
This
legislation established the Federal Trade Commission as the ‘watchdog
of competition’, and as a comprehensive regulatory authority empowered
to protect the consumer against ‘unfair methods of competition’.
Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital
Markets’, the thesis submitted in partial fulfillment of the
requirements for the Degree of Master of Science (M.S.), for The
Administration of Justice Department, Mercyhurst College, Erie, PA,
13th February 2002; See also: Munn, ‘Encyclopedia of Banking and
Finance’, page 383. See: Anti-Trust Laws.
• Financial Future:
A
Futures Contract based upon (relating to) a financial instrument. Such
contracts usually move under the influence of interest rates: as
interest rates rise, contracts fall in value; as rates decline,
contracts gain in value. Examples include: Treasury Bills, Treasury
Notes, GNMA Pass-Throughs, foreign currencies, and Certificates of
Deposit (CDs). Main source: John Downes and Jordan Elliot Goodman,
‘Dictionary of Finance and Investment Terms’, 7th Ed., Happauge:
Barron’s Educational Series, Inc., 2006, s.v. ‘Financial Future’.
• Financial Guarantee:
A
non-cancellable indemnity bond guaranteeing the timely payment of
principal and interest due on securities by the maturity date. If the
issuer defaults, the insurer will pay out a fixed sum of money to
holders of the securities. Financial guarantees are further written by
banks which are allowed to operate in the insurance business by the
Garn-St Germain Act of 1982, which prohibited banks from entering the
insurance business. Insurance companies selling bond insurance must be
monoline underwriters, a status which precludes their direct ownership
by property and casualty insurance corporations. Source: Thomas P.
Fitch, ‘Dictionary of Banking Terms’, 3rd Edition, Happauge: Barron’s
Educational Series, Inc., 1997, c.v. ‘Financial Guarantee’
• Financial Holding Company: The Bank
Holding Company Act of 1956 prohibited any affiliations between banks
and insurance companies (referred to as ‘firewall restrictions’). A
Bank Holding Company qualifies as a Financial Holding Company if:
(1): Its banking subsidiaries are ‘well capitalised’ and ‘well
managed’; and:
(2):
It files with the Federal Reserve Board a certification to such effect
and a declaration that it elects to become a Financial Holding Company.
Securities
firms and insurance companies must undergo a two-stage process: first,
they must qualify as Bank Holding companies under the 1956 Act; and
secondly they must then qualify as Financial Holding Companies. Source:
John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and
Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series,
Inc., 2006, s.v. ‘Financial Holding Company’.
•
Financial Industry Regulatory Authority (FINRA): FINRA was brought into
existence in July 2007 through consolidation of the National
Association of Securities Dealers (NASD) and NYSE Member Regulation. It
is the largest US non-governmental regulator and covers all securities
firms doing business in the United States. FINRA oversees nearly 5,000
brokerage firms, about 172,000 branch offices and more than 676,000
registered securities representatives. Source: Financial Regulatory
Authority, corporate information ‘About FINRA’: copyright 2008 FINRA;
this document is available from: http://www.finra.org (Internet).
• Financial Institutions Reform, Recovery
and Enforcement Act of 1989 (FIRREA):
Enacted
on 9th August 1989, this legislation addressed the crisis affecting the
Savings and Loan Associations (‘thrifts’) after the sector had been
‘enronised’ by the criminalist kleptocracy headed by George H. W. Bush
Sr. Also known as the Bailout Bill, this legislation revamped the
regulatory, insurance and financing structures, establishing the Office
of Thrift Supervision. It created:
(1):
The Resolution Trust Corporation (RTC) which, operating under the
management of the Federal Deposit Insurance Corporation (FDIC), was
charged with closing or merging institutions which had become insolvent
and would be becoming insolvent in the future;
(2): The
Resolution Funding Corporation (a.k.a. REFCORP), which was charged with
borrowing from private capital markets to fund the RTC’s operations to
manage the remaining assets and liabilities that had been taken
over/assumed by the Federal Savings and Loan Insurance Corporation
(FSLIC), a Government-Sponsored Enterprise (GSE), prior to 1989;
(3):
The Savings Association Insurance Fund (SAIF), which was to replace the
FSLIC as the insurer of ‘thrift’ deposits and would henceforth be
administered by the FDIC separately from its bank deposit insurance
programme, which then became the Bank Insurance Fund (BIF); and:
(4): The Federal Housing Finance Board (FHFB), which was charged with
overseeing the Federal Home Loan Banks.
•
The Resolution Trust Corporation was authorised to accept additional
insolvent institutions up to June 1995, after which date
responsibilities for the handling of newly failed institutions was
shifted to SAIF. This typically convoluted mishmash of arrangements
successfully (up to a point) masked and obfuscated the reality, which
was that the Savings and Loans Associations (S & Ls) had been
systematically scammed and ‘enronised’ by the organised kleptocracy,
this being the model for the kleptocracy’s subsequent systematic
attacks on the US financial bedrock.
•
The overall strategy here was to allow the scandal to escalate to the
point where Congressional action became mandatory, whereupon Congress
was pressurised to establish institutions that the insiders could then
exploit – in this case, to buy up vast portfolios of land and assets
for cents on the US dollar, which were then used as collateral for
borrowings that were in turn leveraged and hypothecated into high-yield
trading programmes for the benefit of the corrupt insider community.
Source for technical information (not the commentary):
John
Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment
Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006,
s.v. ‘Financial Institutions Reform, Recovery and Enforcement Act of
1989 (FIERRA)’.
• Financial
Institutions Regulatory Act of 1978 prohibits management interlocks by
banks operating in the same Metropolitan Statistical Area (MSA).
However it exempts the smaller banks, and permits interlocks of up to
49% of a bank’s management officers. See also entry: Interlocking
Directorates. Source: Thomas P. Fitch, ‘Dictionary of Banking Terms’,
3rd Edition, Happauge: Barron’s Educational Series, Inc., 1997, c.v.
‘Interlocking Directorates’.
•
Financial Operations Officer, of a Securities firm: The financial
Operations Officer of a securities firm is equally responsible with the
Registered Principal [see Principal, of a Securities firm], for the
firm’s financial reports to the SEC and the NASD, for the accurate
record-keeping of the firm’s Net Capital Account, and for all trades
and customer accounts and correspondence, advertising, and sale
literature issued by the company. The Financial Operations Officer must
also pass the Series 27 (Financial and Operations Principal) as well as
the Series 7 (General Securities Representative) Examinations conducted
by the NASD; and must further pass written procedures and oral
interview prior to assuming this position with the firm. Source:
Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’,
the thesis he submitted in partial fulfillment of the requirements for
the Degree of Master of Science, The Administration of Justice
Department, Mercyhurst College, Erie, PA, on 13th February 2002; NASD,
‘National Association of Securities Dealers, Inc.: Manual’, April 1998,
page 3171; NASD, 'NASD Compliance Check List'.
•
Financial Services Modernization Act (FSMA) of 1999, also known as the
Gramm-Leach Bliley Act: This Act repealed parts of the Glass-Steagall
Act of 1933 and the Bank Holding Company Act of 1956. It permits
commercial banks, merchant banks, securities firms and insurers to
affiliate through the structure called the Financial Holding Company.
Under the Act, Nationally (Federally) Chartered Banks are permitted to
engage in most financial activities through Direct Subsidiaries. The
FSMA permitted Financial Holding Companies to:
1: Lend;
2: Exchange;
3: Transfer;
4: Invest for others;
5: Safeguard money or securities (custodial services);
6:
Engage in insurance activities, including insuring and acting as
principal, agent, or broker for all types of insurance (including
health), and providing financial advice (including the provision of
financial advice to investment companies);
7: Issue or sell instruments representing interests in pools of assets
that are permissible for a bank to hold indirectly;
8: Underwrite, deal in, or make a market in securities with no
limitation as to revenue;
9: Engage in activities outside the United States;
10:
Be seized of the following (text is verbatim here): ‘The Federal
Reserve Board has determined to be usual in connection with the
transaction of banking or other financial operations abroad’.
Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance
and Investment Terms’, 7th Edition, Happauge: Barron’s Educational
Series, Inc., 2006, s.v. under: ‘Financial Services Modernization Act’.
•
FinCEN [Financial Crimes Enforcement Network] is a bureau of the US
Treasury which collects and analyses information about financial
transactions in order to combat money laundering, the financing of
terrorism, and other financial crimes and fraudulent finance. In line
with the double-mindedness which characterises the kakocracy, almost
all the senior criminalist figures identified in our reports have
themselves been engaged in financing terrorism on a colossal scale.
Created
in 1990, FinCEN seeks to realise the potential of critical
information-sharing among law enforcement agencies and its other
partners in the regulatory and financial communities. While the
Financial Crimes Enforcement Network’s task is to safeguard the US
financial system from abuses associated with financial crime, including
the financing of terrorism, money laundering and other illicit
activities, it does nothing the curb the excesses of the criminalists
holding high office, who assume that the privileges and power of their
offices, together with their prolific use of the ‘Black Arts’ of
bribery and blackmail, protect them from the consequences of their
actions.
While,
therefore, FinCEN’s publicity presupposes that it thinks it is doing a
good job, the record inter alia of our reports suggests the reverse.
FinCEN was established by order of the Treasury Secretary (Treasury
Order Numbered 105-08) on 25th April 1990. In May 1994, its
responsibilities were broadened to include regulatory responsibilities,
and the US Treasury’s Office of Financial Enforcement (OFE) was merged
with FinCEN in October 1994. On 26th September 2002, after the passage
of Title III of the USA Patriot Act, Treasury Order Numbered 180-01 [1]
made FinCEN an official bureau within the Department of the Treasury.
Under Section 314(a) of the USA
Patriot Act of 2001, Federal law enforcement agencies, through FinCEN,
are empowered to reach out to more than 45,000 points of contact at
over 27,000 financial institutions to locate bank accounts and
transactions by persons that may be involved in terrorist financing
and/or money laundering. This cooperative partnership between the
financial community and law enforcement allows disparate items of
information to be identified, centralised, and rapidly evaluated.
FinCEN has its headquarters in Vienna, VA. See: www.fincen.gov
[Internet].
•
Full Disclosure: Public information requirements established by the
Securities Act of 1933, the Securities Act of 1934, and the major US
stock exchanges. Source: John Downes and Jordan Elliot Goodman, see
their ‘Dictionary of Finance and Investment Terms’, 7th Edition,
Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Full
Disclosure’.
•
Garn-St Germain Depository Institutions Act of 1982: This Federal law
was enacted in 1982, and authorised banks and savings institutions to
offer a new type of account, known as the Money Market Deposit Account,
which is a transaction account with no interest rate ceiling, to
compete more effectively with money market mutual funds. The
legislation also gave the Savings and Loan Associations the authority
to extend commercial loans; and it gave Federal regulatory agencies the
authority to approve, for the first time, interstate acquisitions of
failed institutions and also savings institutions. Thus, the Act
effectively created the environment for the subsequent enronisation of
the Savings and Loan Associations, providing inter alia that:
(1): Savings and Loan Associations were authorised to extend
commercial, corporate, business or agricultural loans up to 10% of
assets after 1st January 1984;
(2):
The deposit interest differential, allowing Savings and Loans and
Savings Banks to offer rates on interest-bearing deposit accounts that
were 0.25 of 1% higher than commercial banks, was lifted, as of January
1984;
(3): The Act authorised a new capital assistance program,
the Net Worth Certificate Program, under which the US Federal Savings
and Loan Insurance Corporation and the Federal Deposit Insurance
Corporation would be able to purchase novel capital instruments called
Net Worth Certificates from savings institutions with net
worth-to-assets ratios of under 3%, and would subsequently redeem the
certificates as they regained financial health;
(4): The Act
permitted Savings and Loan Associations to offer checking accounts
(demand deposit accounts) to individuals and business checking accounts
to customers who had other accounts;
(5): Savings and Loans were
authorised to increase their consumer lending from 20% to 30% of
assets, and to expand their dealer lending and floor-plan loan
financing;
(6):
The Act raised the ceiling on direct investments by savings
institutions in nonresidential real estate from 20% to 40% of assets,
and also allowed investment of 10% of assets in education loans for any
educational purpose, and up to 100% of assets in state and municipal
bonds;
(7): The Act pre-empted State restrictions on enforcement
by lenders of due-on-sale clauses in most mortgages for a three-year
period ending on 15th October 1985, and further authorised State
chartered lenders to offer the same kind of alternative mortgage deals
that nationally chartered financial institutions were allowed to offer
(opening the door to what became the ‘sub-prime’ crisis;
(8): The Act authorised the Comptroller of the Currency to charter
Bankers’ Banks, or depository institutions owned by other banks;
(9): It made State chartered industrial banks eligible for Federal
deposit insurance; and:
(10): It raised the legal lending limit for National Banks from 10% to
15% of their capital and surplus.
Source:
Thomas P. Fitch, ‘Dictionary of Banking Terms’, 3rd Edition, Happauge:
Barron’s Educational Series, Inc., 1997, c.v. ‘Garn-St. Germain
Depository Institutions Act’. See also: Financial Guarantee; Savings
and Loan Deregulation.
• Glass-Steagall Act of 1933:
Legislation passed by Congress which:
(1): Authorised deposit insurance;
(2): Prohibited commercial banks from owning full-service brokerages
(Securities Houses of Broker/Dealers);
(3):
Prohibited banks from undertaking investment banking activities, for
instance underwriting corporate securities or municipal revenue bonds;
(4): Was framed to insulate bank depositors from the risk involved when
a bank deals in securities, in order to prevent banks from collapsing.
The
Glass-Steagall Act was disabled by the Financial Services Modernization
Act (a.k.a. the Gramm-Leach Bliley Act, a.k.a. the Financial Services
Modernisation Act). Source: John Downes and Jordan Elliot Goodman,
‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge:
Barron’s Educational Series, Inc., 2006, s.v. ‘Glass-Steagall Act’.
• Gramm-Leach Bliley Act of 1999:
See: Financial Services Modernization Act; Glass-Steagall Act of 1933.
•
Guarantee: This entails the acceptance of responsibility for payment of
a debt or for performance of some obligation if the person (entity)
primarily liable fails to perform. The guarantor acquires a Contingent
liability – namely, a potential liability that is not going to be
recognised in accounts until the outcome becomes probable in the
opinion of the company’s accountant. Source: John Downes and Jordan
Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th
Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v.
‘Guarantee’.
•
Guaranteed Bond: A Bond that is characterised by the fact that the
principal and interest are guaranteed by a firm other than the issuer.
Both guaranteed stock and guaranteed bonds become, in effect, debenture
(unsecured) bonds of the guarantor. Source: John Downes and Jordan
Elliot Goodman, see: ‘Dictionary of Finance and Investment Terms’, 7th
Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v.
‘Guaranteed Bond’.
• High-Yield Investment Program:
A
sophisticated scam perpetrated in many instances by corrupt elements of
US intelligence and associates, masterminded inter alia by the
arch-criminalist George H. W. Bush Sr. and his corrupt co-conspirator,
Dr Alan Greenspan, the former Chairman of the Federal Reserve Board.
Due to overuse of this term by the corrupt operators, it has become
more or less synonymous with the generic term ‘fraudulent finance’, and
with Ponzi and Pyramid Schemes (known as ‘pyramid-selling schemes’ in
Britain). Experts are divided as to whether most High-Yield Investment
Programs are Ponzi schemes, or not. Our own investigations suggest that
colossal sums of stolen and duplicated funds (as explained in the
Wantagate reports) were also used in these schemes, with stolen money
being employed as purported back-up for promised and actual initial
payouts. However these were never intended to occur beyond the first
and perhaps the second layers, as the fraudulent finance techniques
were used to entice retail investors into parting permanently with
their funds, often after signing illegal Non-Disclosure Agreements.
High-yield
investment programs were/are able to collect large amounts of money for
the criminalist operators because initial payoffs to first and second
round participants (financed from the stolen money in the case of the
giga-scams presided over inter alia by the aforementioned master
crooks) gave the scams momentum by spreading news of the sizeable
initial payments by word of mouth – a situation that prevails as long
as new participants can be found and/or old participants are foolish
enough to leave their money in the schemes in the hope of gaining high
rolled-up interest on their initial investments. Participants are
usually attracted by some form of an appeal to emotion or faith that
the program will help them to achieve rapid financial freedom.
High-Yield Investment Programs may also mirror pyramid-selling schemes
by offering current investors incentive commissions, for instance, 9%
of investment by the participant on top of promised accruals, to
recruit new investors.
Notorious documented High-Yield Investment Programs include:
(1):
OSGold, founded as an e-gold ‘imitation’ in 2001 by David Reed, It
folded in 2002. According to a lawsuit filed in US District Court in
2005, operators of OSGold may have made off with $230 million.
(2):
The second largest documented High-Yield Investment Program was PIPS
(People In Profit System, or Pure Investors. Started by Bryan Marsden
in 2004, this scheme spanned more than 20 countries. PIPS was
investigated by Bank Negara Malaysia in 2005, resulting in Marsden and
his wife being charged in a Malaysian Court with some 97 counts of
money laundering more than 77 Malaysian ringgit, equivalent to $20
million [New Straits Times, 11th October 2006]. Yet even after these
charges were brought, many of Marsden’s followers continued to support
him and to believe that they would be seeing their money in future. A
similar rationalisation and denial syndrome can be observed in many
other High-Yield Investment Program contexts.
(3): Indicted operators or schemes under investigation:
12DailyPro
Autosurf (United States: Securities and Exchange Commission);
Ginsystem, Inc. (Singapore: Commercial Affairs Department of
Singapore); IT4US (United States); PlexPlay (Norway: HegnarOnline, in
Norwegian); Solidinvestment (United States).
The foregoing
provides merely a preliminary outline of the background to these scams,
concerning which a considerable literature now exists. Promoting or
perpetuating Ponzi schemes is a criminal offence punishable by jail
terms or fines in most countries. The fact that the High-Yield
Investment Program monitoring websites publicise disclaimers to the
effect that the sites ‘do not promote the programs advertised’ on their
websites, does not absolve the operators from criminal liability.
A
disturbing feature of this environment is that a large number of
High-Yield Investment Program participants persist in participating in
further schemes long after they have already lost money in schemes that
have either folded, or in respect of which the operator has
disappeared. The fact that most of the publicised schemes are openly
labelled scams on the relevant Internet monitor boards, even though
their operators are themselves criminally liable, suggests that many
participants are well aware of the risks they are running, know that
the schemes are fraudulent, but choose to put money in them anyway,
like addicted gamblers.
Former
officials and members of the US armed forces may have been taken in by
indications that the operators were officially connected or even that
the scams in which they have participated were legitimate because of
such alleged connections, including intelligence backgrounds.
The
perpetrators play on the understandable anger felt by those who have
been scammed, even though they were originally enticed by the US
perpetrators into becoming prospectively felonious participants
themselves, a condition which leads psychologically to the state of
denial that in turn supposedly provides the perpetrators with the
protection that they require.
However
the operators, sitting on their stolen funds, may well fear the
ultimate outcome, should manipulation of the expectations of the
scammed investors cease to remain perversely ‘credible’, or those
manipulative counterintelligence Psy-Ops initiatives are closed down.
• Hypothecation:
Originally
a pledge of property as collateral for indebtedness without transfer of
possession to the party extending the loan. This arrangement is common
in the case of mortgages. The borrower retains legal ownership of the
property but provides the lender with a lien over the property until
the debt is paid off. Rehypothecation occurs when a broker pledges
hypothecated client-owned securities in a margin account to secure a
bank loan.
The
fraudulent finance buried inside the ‘sub-prime’ mortgage nexus of
scandals was explained in our report dated 26th December 2007 [www.worldreports.org:
Archive]. As described in that report, the ‘homeowner’ has been
scammed, either he or she has been coerced into signing several top
copies of the same document, enabling the lending bank to claim
ownership even though the bank has sold the mortgage on the basis of
another top copy, for instance, to one of the co-conspiring
Government-Sponsored Enterprises; or because the bank has alienated its
ownership of the loan to the GSE in question, or has packaged the
mortgage with other loans, as well as with worthless securities
underpinned by no real asset, and has sold such packages on to parties
(usually abroad) which have not performed due diligence.
In
our report of 26th December 2007, we advised ALL US ‘homeowners’ facing
foreclosure to let the Court know that the underlying contract has been
requested from the bank. In most instances, the bank will be unable to
supply it, because it has sold on the mortgage to the GSE, having
therefore already passed on the risk. People facing foreclosure who ask
for the contract can usually expect to be pleasantly surprised at the
outcome of their cases.
• Internal Revenue Service (IRS):
The
IRS is part of the US Treasury Department, and was officially created
by Act of Congress on 1st July 1962. The IRS is responsible for
administering and enforcing the Internal Revenue Code (IRC), as
established under US Congressional authority, passed in 1913, to levy
taxes on the income of individuals and corporations.
In 1939,
the IRC was codified from the separate Internal Revenue laws. The IRS
Code was further overhauled in 1954, with substantive new provisions
being added concerning depreciation, the double taxation of dividends,
research and experimental expenditures, carryback on operating losses,
tax on ‘unreasonable’ accumulations of surplus, preferred stock
bail-outs, and collapsible corporations and partnerships.
Of
the enormous changes to the IRC implemented since 1954, the most
important for the context we are dealing with here was the Tax Equity
and Fiscal Responsibility Act (TEFRA) of 1982 which, inter alia,
required US taxpayers to report all sources of income, wherever it was
earned anywhere in the world. It follows that all receipts received by
American taxpayers since the passage of this Act which have not been
reported to the Internal Revenue Service are taxable, which means that
all US taxpayer holdings in offshore accounts that have not been
declared for tax are liable for tax and penalties. Main source: Michael
C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, thesis
submitted in partial fulfillment of the requirements for the Degree of
Master of Science, for The Administration of Justice Department,
Mercyhurst College, Erie, PA, 13th February 2002; see also: Munn,
‘Encyclopedia of Banking and Finance’, page 589.
• Interlocking Directorates:
These
reference commercial banks or savings institutions which have
individuals on their Boards of Directors who further serve on the Board
or Boards of one or more unaffiliated competitor(s) operating in the
same marketplace. The US Financial Institutions Regulatory Act of 1978
prohibits management interlocks by banks operating in the same
Metropolitan Statistical Area (MSA). But it exempts smaller banks, and
also permits interlocks of up to 49% of a bank’s management officers.
Source: Thomas P. Fitch, ‘Dictionary of Banking Terms’, 3rd Edition,
Happauge: Barron’s Educational Series, Inc., 1997, c.v. ‘Interlocking
Directorates’.
• International Banking Act of 1978:
This
legislation essentially places American branches and agencies of
foreign banks under the supervision of US bank regulators. The
provisions included: authorising the Comptroller of the Currency to
license and supervise a foreign bank; authorising Federal bank agencies
to examine US offices of any foreign bank; subjecting any foreign bank
branch or holding company to the Bank Holding Company Act, just like
any US bank holding company; and imposing reserve requirements and
Federal deposit insurance coverage for foreign banks to the same extent
as the US member banks. Sources: Michael C. Cottrell, B.A., M.S.,
‘Elite Power & Capital Markets’, thesis submitted in partial
fulfillment of the requirements for the Degree of Master of Science,
for The Administration of Justice Department, Mercyhurst College, Erie,
PA, 13th February 2002; see: Munn, ‘Encyclopedia of Banking and
Finance’, page 563.
• International Banking Act of 1987:
Created
a Federal regulatory structure similar to the Federal Reserve to
examine the assets and liabilities of foreign banks on-site, and to
ensure similar licensing and regulation of non-banking activities of
foreign banks. It also required the Federal Reserve to maintain the
same competitive equity requirements for foreign banks as for US member
banks. Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power &
Capital Markets’, thesis submitted in partial fulfillment of the
requirements for the Degree of Master of Science, Administration of
Justice Department, Mercyhurst College, Erie, PA, 13th February 2002;
Munn, ‘Encyclopedia of Banking and Finance’, page 563.
• Investment Banking:
The
sale and distribution of a new offering of securities, carried out by a
financial intermediary (an investment banker), who purchases securities
from the issuer as principal, and assumes the risk of distributing
securities to investors. Source: Thomas P. Fitch, ‘Dictionary of
Banking Terms’, the 3rd Edition, Happauge: Barron’s Educational Series,
Inc., 1997, c.v. ‘Investment Banking’.
• Investment Company Act of 1940:
This
Act requires that all companies which offer securities or investment
advice to the public must register with the Securities and Exchange
Commission. For instance, any advisory corporation that offers
investment advice (not straight reporting, but advice) must register
with the SEC. For those who may be interested, this explains why this
service does not offer advice and will not respond to the frequent
requests for financial investment advice that we routinely receive.
Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital
Markets’, thesis submitted in partial fulfillment of the requirements
for the Degree of Master of Science, for The Administration of Justice
Department, Mercyhurst College, 13th February 2002; Munn, ‘Encyclopedia
of Banking and Finance’, page 589.
•
Kakocracy: Rule by the worst elements of society exclusively in their
own interests and with cynical and permanent disregard for the
interests of anyone else.
•
Kleptocracy: The ascendancy of a rapacious, thieving class of
co-conspiratorial bandits protected by public office that is bent on
maximising the open-ended potential of their office and power for
personal enrichment and for the furtherance of clandestine agendas
divorced from the interests of the people and the constituencies they
are supposed to serve. This term is used in these reports even though
kleptomania is strictly defined in the Oxford Senior Dictionary as ‘an
uncontrollable tendency to steal things, with no desire to use or
profit by them’.
The
definition is interesting, because it reveals an element of madness
that is clearly inherent in the behaviour of the criminalist snakes
identified in these reports. This madness can be observed in the
rapacious behaviour, for instance, of the arch-criminalist DVD
godfather, George Bush Sr., whose avarice for other people’s money
notoriously knows no bounds, despite his age, indicating that he
chooses to remain unaware of his own mortality: a characteristic of
greed which can only be described as symptomatic of mental derangement.
• Leverage, Financial and Investment:
(1):
Financial Leverage: Debt in relation to equity in a firm’s capital
structure (such as long-term debt, preferred stock, and shareholders’
equity. Financial leverage is measured by the debt-to-equity ratio: the
more long-term debt there is, the greater the financial leverage.
(2): Investment leverage: A
means of enhancing return or value without increasing investment: for
instance, by buying securities on margin with borrowed money. Extra
leverage may be achievable if the leveraged security is convertible
into common stock.
(3): Note: Option contracts provide leverage,
with NO borrowings, offering the prospect of high return for little or
no investment.
Source: John Downes and Jordan Elliot Goodman,
‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge:
Barron’s Educational Series, Inc., 2006, s.v. ‘Leverage’.
•
Maloney Act of 1938: An amendment to the Securities Act of 1933 which
created the US National Association of Securities Dealers (NASD). The
legislation promoted the organisation of member securities dealers as a
Self-Regulating Organizations (SRO) under the supervision of the
Securities and Exchange Commission (SEC) to institutionalise a code of
ethics in the securities industry and its enforcement nationwide. NASD
members are known as Broker/Dealers, since they represent both clients
that buy and/or sell securities, and themselves, as a principal, when
they are engaged in underwriting and/or selling a stock or bond issue
directly to the public. The NASD is the only firm operating under the
Maloney Act. See: NASD: National Association of Securities Dealers.
Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital
Markets’, thesis submitted in partial fulfillment of the requirements
for the Degree of Master of Science, Administration of Justice
Department, Mercyhurst College, Erie, PA, 13th February 2002; NASD,
‘National Association of Securities Dealers, Inc.: Manual, April 1998,
page 3171.
• Margin Accounts: See Mark to [The]
Market and: Margin Requirements
• Margin Requirements:
The
minimum amount that a client must deposit in the form of cash or
eligible securities in a Margin Account, as is spelled out under
Regulation T of the Federal Reserve Board. Regulation T requires a
minimum of $2,000 or 50% of the purchase price of eligible securities
bought on margin or 50% of the proceeds of short sales. Also referred
to as the Initial Margin. Primary source: John Downes and Jordan Elliot
Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition,
Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Margin
Requirement’.
• Margin Security:
This
is a security that may be bought or sold in a Margin Account.
Regulation T of the Federal Reserve Board defines margin securities as:
(1): Any registered security (a listed security or a security having
unlisted trading privileges);
(2):
Any OTC margin stock or OTC margin bond, which are defined as any
unlisted security that the Federal Reserve Board (FRB) periodically
identifies as having the investor interest, marketability, disclosure
and solid financial position of a listed security;
(3):
Any OTC security designated as qualified for trading in the National
Market System under a plan approved by the Securities and Exchange
Commission;
(4): Any mutual fund or unit investment trust
registered under the Investment company Act of 1940. Other securities
that are not exempt securities must be transacted in cash. Source: John
Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment
Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006,
s.v. ‘Margin Security’.
• Mark to [The] Market:
Adjustment
of the valuation of a security or portfolio to reflect current
(prevailing) market values. For instance, Margin Accounts are marked to
market in order to ensure compliance with financial maintenance
requirements. (In UK parlance, the definite article is dropped).
Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance
and Investment Terms’, 7th Edition, Happauge: Barron’s Educational
Series, Inc., 2006, s.v. ‘Mark To The Market’.
• Money laundering:
Passing
illegally acquired funds or taxable funds on which no tax has been paid
inter alia with the intent to evade tax and to hide the funds from
relevant national authorities. American legislation addressing
money-laundering includes:
(1): The Bank Secrecy Act of 1970;
(2): The Money Laundering Control Act of 1986;
(3): The anti-Drug Abuse Act of 1988;
(4): The Annunzio-Wylie Money Laundering Act of 1992;
(5): The Money Laundering Suppression Act of 1944; and:
(6): The Terrorism Prevention Act of 1996.
The Money Laundering Control Act of 1986 made money laundering a
Federal crime corresponding to the previously passed Organized Crime
Control Act of 1970. See separate entries in Glossary.
Sources:
Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’,
thesis submitted in partial fulfillment of the requirements for the
Degree of Master of Science, The Administration of Justice Department,
Mercyhurst College, Erie, PA, 13th February 2002; Munn, Encyclopedia of
Banking & Finance, page 109; also: John Madinger and Sydney A.
Zalopany, ‘Money Laundering: A Guide for Criminal Investigators’, New
York, CEC Press, LLC, 1999, page 43; Howard Abadinsky, ‘Organized
Crime’, 6th Edition, Belmont: Wadsworth/Thompson Learning, Inc., 2000,
page 411; FINCEN, ‘The Global Fight Against Money Laundering’,
Financial Crimes Enforcement network (FINCEN, 1999, available from:
http:// www.occ.treas.gov/launder
(Internet).
• Money Laundering Control Act of 1986:
This
legislation made money laundering a Federal crime corresponding to the
previously passed Organized Crime Control Act of 1970. See: Money
laundering.
• Money Laundering
Suppression Act of 1994: Legislation which required that ‘any person
who owns or controls a money services business’ must register with the
Secretary of the Treasury. Source: FINCEN, ‘The Global Fight Against
Money Laundering’, Financial Crimes Enforcement network (FINCEN, 1999,
available from: http:// www.occ.treas.gov/launder
(Internet).
• Municipal Securities Rulemaking Board
(MRSB): See Self-Regulatory Organization (SRO), below.
• NASD: National Association of Securities
Dealers:
A
non-profit organisation that was formed under the joint sponsorship of
the Investment Bankers’ Conference and the US Securities and Exchange
Commission (SEC) in order to comply with the requirements of the
Maloney Act. NASD Members include virtually all investment banking
houses and firms dealing in the Over-the-Counter Market.
Operating under the supervision of the SEC, the basic purposes of the
NASD are to:
(1): Standardise practices in the field;
(2): Establish high moral and ethical standards in the securities
trading business;
(3): Provide a representative body to consult with the Government and
investors on matters of common interest;
(4): Establish and enforce fair and equitable rules of securities
trading;
(5): Establish a disciplinary body capable of enforcing the above
provisions.
The NASD requires members to maintain 'quick assets' in excess of
current liabilities at all times.
Within
the NASD, a special Investment Companies Department concerns itself
with the problems of investment companies and has the responsibility of
reviewing companies’ sales literature in that segment of the securities
industry.
Michael
C. Cottrell, M.S., has described the NASD’s contemporary
responsibilities as including the following (to be read in conjunction
of the foregoing information):
(1): Nationwide inspections of member firms;
(2):
Provision of centralised computerised surveillance of the trading of
NASD Automated Quotations, of its sister company NASDAQ;
(3): Enforcement of Securities and Exchange Commission rules and
regulations, as well as of its own rules for members;
(4): To review underwriting arrangements for securities offered to the
public;
(5): To perform and monitor qualification examinations of personnel of
members; and:
(6): To coordinate and cooperate with the SEC, the States and with
other Federal agencies.
The
responsibilities of the SEC do NOT include trading on own account [see
text], a gross abuse of which it has been and continues to be accused.
This abuse is inconsistent with its responsibilities as a regulator and
is considered by experts to be a scandalous development. See also:
Financial Industry Regulator Authority (FINRA). Sources: John Downes
and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment
Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006,
s.v. ‘NASD’; Michael C. Cottrell, B.A., M.S., ‘Elite Power &
Capital Markets’, thesis submitted in partial fulfillment of the
requirements for the Degree of Master of Science, The Administration of
Justice Department, Mercyhurst College, Erie, PA, 13th February 2002;
Munn, ‘Encyclopedia of Banking & Finance’, page 696.
• National Market System: See: Securities
and Exchange Commission (SEC).
• Non-Disclosure agreement:
An
illegal document which, if signed by a participant to a transaction,
precludes any recourse to official regulators for protection after the
participant has predictably been scammed, and likewise precludes any
legal recourse.
• Office of the Comptroller of the
Currency (OCC):
This
is the chief regulator of US National Banks. The Comptroller of the
Currency is appointed by the President of the United States for a
five-year term, with Senate confirmation. The OCC, the supervisory
agency covering nationally chartered banks, is the oldest US Federal
regulator of financial institutions. The Comptroller of the Currency
also serves as one of the three Directors of the Federal Deposit
Insurance Corporation. Source: Thomas P. Fitch, ‘Dictionary of Banking
Terms’, 3rd Ed., Happauge: Barron’s Educational Series, 1997, c.v.
‘Comptroller of the Currency’.
• Office of Thrift Supervision (OTS):
This
US Federal agency was established under the Financial Institutions
Reform, recovery and Enforcement Act of 1989 to examine and supervise
Savings and Loan Associations (‘thrifts’) and Federal Savings Banks. It
replaced the Federal Home Loan Bank Board as the primary regulator of
State chartered and Federally chartered savings institutions. It is a
bureau within the US Treasury Department. The Director and Chief
Operating Officer (CEO) of OTS is appointed by the President of the
United States with Senate confirmation, and is also one of five
directors of the Federal Deposit Insurance Corporation (FDIC). The fact
that the OTS is structured within the US Department of the Treasury
parallels the position with the Office of the Comptroller of the
Currency. Source: Thomas P. Fitch, ‘Dictionary of Banking Terms’, 3rd
Edition, Happauge: Barron’s Educational Series, Inc., 1997, c.v.
‘Office of Thrift Supervision’.
• ‘Open outcry’:
A
non-electronic method of communication between professionals on a stock
or futures exchange involving shouting and the use of hand signals to
transfer information primarily about buy and sell orders. The component
of the trading floor where this takes place is often called the pit.
The best-known ‘open outcry’ markets in the United States remain the
New York Mercantile Exchange, the Chicago Mercantile Exchange, the
Chicago Board of Trade, the Chicago Board Options Exchange, and the
Minneapolis Grain Exchange. In the United Kingdom, the London Metal
Exchange (LME) still makes use of the 'open outcry' method. Many
traders prefer the ‘open outcry’ system on the basis that physical
contact in the pit allows traders to speculate as to the motives or
intentions of buyer/seller, so that positions can be adjusted
accordingly.
• Organized Crime Control Act of 1970:
See Money Laundering Control Act of 1986; and Money laundering.
• Over-the-Counter:
(1): Of a security: A security that is not listed and traded on an
organised exchange;
(2):
Of a market: A market in which securities transactions are conducted
through a telephone and computer network connecting dealers in stocks
and bonds, rather than, as classically, on the floor of an exchange.
Over-the-counter stocks are traditionally those of smaller companies
that do not meet the listing requirements of the New York Stock
Exchange or the American Stock Exchange.
In recent years,
however, many companies that qualify for listing have chosen to remain
with Over-the-Counter trading, because they consider that the system of
multiple trading by many dealers is preferable to the centralised
trading approach of the New York Stock Exchange, where all trading in a
stock has to go through the Exchange specialist in that stock. The
rules for Over-the-Counter stock trading are written and enforced
largely by the US National Association of Securities Dealers (NASD),
which is self-regulating (see NASD).
Prices
of Over-the-Counter stocks are published in daily newspapers, with the
National Market System stocks listed separately from the rest of the
Over-the-Counter market. Over-the-Counter markets incorporate markets
in both Government and municipal bonds. Source: John Downes and Jordan
Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th
Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v.
‘Over-the-Counter (OTC)’.
• Pass-Throughs:
Pass-Through
Securities: Pools of fixed-income securities that are backed by a
package of assets. A servicing intermediary collects monthly payments
from issuers and, after deducting a fee, remits or passes them through
to the holders of the pass-through security. This device is also known
as a ‘pass-through certificate’ or a ‘pay-through security’. The most
common type of pass-through is a mortgage-backed certificate, whereby
‘homeowners’’ payments pass from the original lending bank through a
Government agency or investment bank to the investors (per the supposed
model).
• Ponzi Scheme:
A
scam designed to entrap the unwary investor, as described in the
following analyses published on this website [see Archive) and in International
Currency Review:
(1): ‘Treasongate Update: Omega ‘Ponzi Game’ scams, 13th January 2007;
(2): ‘Treasongate Background: Intel Ponzi Scams’, 22nd January 2007.
So-called
'lending programs’, a.k.a. High-Yield Investment Programs operating
along Ponzi or Pyramid Scheme lines promoted clandestinely inter alia
by corrupt elements of the criminalist US intelligence community
(including the CIA’s OMEGA OPS scams) will comply with none of these
stringent regulations and requirements, and are accordingly, by
definition, ALL ILLEGAL IN THE UNITED STATES. This may well be the
basis upon which non-payment of these accounts has been predicated. The
question therefore arises: why have these illegal schemes been so
widespread, having given rise to a colossal constituency of the
American ‘broken hearted’, who have been scammed in one way or another
but who have been clinging to the hope, like Rip van Winkel, that they,
their family trusts or their restless associations of ‘the scammed’,
will finally be paid out one sunny day far out into the future?
The
generic answer to this question is that the cynical, criminalised
fraudster élite, headed by the crooks controlling and inside the
intelligence community, have taken precautions to instal their own
corrupt operatives within and in control of certain enforcement
institutions, including the SEC.
Enron
and the Federal Deposit Insurance Corporation (FDIC) have been used to
proliferate and perpetuate these illegal securities scams: indeed, it
is from operations such as the CIA’s nefarious Enron scamming system,
that the derivatives overhang and crisis have mainly arisen.
As
a consequence, blind US official (Federal and State) eyes have been
turned to what has been going on, the securities regulations have not
been enforced with respect to such illegal Ponzi frauds, and the old
system whereby anyone involved with trading securities was blackballed
for life if caught engaged in irregular activities, has been moribund
since the 1970s.
When an uncorrupt SEC Commissioner tried, quite
recently, to enforce the regulations, he was removed from his post on
some typically trumped-up pretext or other. In other words, the wolves
are and have been in charge of the chicken coops.
So key enforcers are, as matters stand, co-conspirators
in the despicable, hitherto (but since the Wantagate and the subsequent
exposures, no longer) proliferating intelligence community-driven Ponzi
Game operations that have devastated an unknown number of American
families – with the proceeds channelled through corrupt participating
banks into offshore accounts. See Appendix to this report for the
narrative of the original Ponzi fraud.
• Principal:
(1): The person with highest authority in a business, or a person for
whom another acts as an agent.
(2): A capital sum as distinguished from the interest on it.
(3): See also: Principal, of a Securities firm.
Source: Oxford Senior Dictionary, Oxford University Press, 1984.
• Principal, of a Securities firm:
An NASD member firm is directed by a Registered Principal, who can be
the sole proprietor, an officer, a partner, a manager of an office of
Supervisory Jurisdiction, and/or a Director of the firm.
The
Registered Principal is answerable for all actions taken on behalf of
the firm, and all trades submitted by the firm, and all actions of its
registered representatives, subject to the rules and regulations of the
NASD, SEC and the State of registration. The Registered Principal must
pass the Series 24 (General Securities Principal) and also the Series 7
(General Securities Representative) Examinations conducted by the NASD,
and must pass the written procedures and oral interview before assuming
this position for the firm. Sources: Michael C. Cottrell, B.A., M.S.,
‘Elite Power & Capital Markets’, the thesis submitted in partial
fulfillment of the requirements for the Degree of Master of Science,
Administration of Justice Department, Mercyhurst College, Erie, PA, on
13th February 2002; NASD, ‘National Association of Securities Dealers,
Inc.: Manual’, April 1998, page 3171; NASD, NASD Compliance Check List,
Gaithersburg: NASD MediaSource, 1992.
• Principle:
A
basic truth or a general law or doctrine used as a basis of reasoning
or a guide to action or behaviour; a fundamental truth or doctrine, as
of law; a comprehensive rule or doctrine which furnishes a basis or
origin for others; a settle of action, procedure or legal
determination. Also defined as: a truth so clear that it cannot be
proved or contradicted unless by a proposition which is still clearer.
Sources: Oxford Senior Dictionary, Oxford University Press, 1984.;
Henry Campbell Black, M.A., ‘Black’s Law Dictionary’, Revised 4th
Edition, St Paul, West Publishing Company, 1968, s.v., ‘Principle’.
• Prudent Man Rule:
This is the fundamental American principle that is applicable in
respect of professional money management, originally asserted by Judge
Samuel Putnum in 1830 as follows:
‘Those
with responsibility to invest money for others should act with
prudence, discretion, intelligence, and regard for the safety of
capital as well as income’ [1830 Massachusetts Court decision: Harvard
College v. Armory]. The Prudent Man Rule directs trustees ‘to observe
how men of prudence, discretion and intelligence manage their own
affairs, not in regard to speculation, but in regard to the management
and disposition of their funds, considering the probable income as well
as the probable safety of the capital to be invested’. Investments in
risky Ponzi and Pyramid Schemes and in ‘programs’ such as those
referenced, typically breach the Prudent Man Rule.
• Public Offering Price: See: ‘Underwrite’
below.
• Pyramid Scheme or scam: See: Ponzi
Scheme.
• Registered Principal: See: Principal, of
a Securities firm.
• Registered Representative, of a
Securities firm:
This
officer is licensed and authorised to purchase and/or sell stocks,
bonds, options, limited partnerships, tax shelters, mutual funds, and
variable annuities on behalf of a customer or the firm.
The
Registered Representative must have qualified by passing the Series 7
(General Securities Representative) Examination and must be registered
with the firm as an authorised representative. Additionally, all
licensed representatives must have passed the NASD Series 63 (Uniform
State Law) AntiFraud Examination, and must register with each State the
firm intends to operate in.
Source: Michael C. Cottrell, B.A.,
M.S., ‘Elite Power & Capital Markets’, thesis submitted in partial
fulfillment of the requirements for the Degree of Master of Science,
The Administration of Justice Department, Mercyhurst College, Erie, PA,
13th February 2002; NASD, ‘National Association of Securities Dealers,
Inc.: Manual’, April 1998, page 3201; NASD, 'NASD Compliance Check
List'.
• Risk:
Uncertainty
as to whether an asset will earn an expected rate of return, or whether
a loss may occur: Various categories of risk apply in the securities
market environment:
(1): Delivery risk: The possibility that the
buyer or seller of an instrument or foreign exchange may be unable to
meet obligations at maturity.
(2): Liquidity risk: The
possibility that a bank may have insufficient cash or short-term
marketable assets to meet the needs of depositors and borrowers.
(3):
Settlement risk: The possibility that the failure of a major bank, or
its inability to honour payment commitments in a wire transfer network,
could have a domino effect on other institutions, causing similar
failures elsewhere. In the United Kingdom, this is usually referred to
as ‘systemic risk’.
Source:
Thomas P. Fitch, ‘Dictionary of Banking Terms’, 3rd Edition, Happauge:
Barron’s Educational Series, Inc., 1997, s.v. ‘Risk’.
• Risk Free Asset:
A
non-callable, default-free bond such as a short-term Government
security. While such an asset is not risk-free in terms of inflation,
it is (given that the Government can always print money) risk-free in a
dollar sense. Source: Jerry M. Rosenberg, ‘The Essential Dictionary of
Investing & Finance’, New York, Barnes & Noble, Inc., 2004,
s.v. ‘Risk Free Asset’.
• Rule of Law, A (indefinite article):
The
way this may be defined in the present context is to begin with the
word ‘Rule’. A ‘Rule’ is an established standard, guide or regulation,
especially a regulation set up by an official authority. It prescribes
or directs action or forbearance. The term also covers a regulation
made by a Court of Justice or a public office with reference to the
conduct of business therein. Hence, ‘A Rule of Law’ encompasses a legal
principle, or a body of legal principles, of general application,
sanctioned by the recognition of authorities, and usually expressed in
the form of a maxim or logical proposition. The word ‘Rule’ is used
because in doubtful or unforeseen circumstances it is a guide or norm
for the decision of those concerned (Toullier, tit. Prel. No. 17).
Source:
Henry Campbell Black, M.A., ‘Black’s Law Dictionary’, Revised 4th
Edition, St Paul, West Publishing Company, 1968, s.v. ‘Rule of Law’.
•
Rule of Law, The (definite article): Note that the foregoing diverges
from ‘The Rule of Law’. The common interpretation of The Rule of Law is
that ‘the Law rules’ or is paramount: in other words that everyone in
society, including the Government, operates within the ordered
framework of the Law, precluding arbitrary behaviour. It is important
to distinguish between the indefinite and the definite article here,
because ‘Rule of Law’ has a different meaning, depending on which is
used.
• Savings and Loan Deregulation:
The
Garn-St Germain Act of 1982 cut Savings and Loan Associations loose
from the tight girdle of ‘old-fashioned’, ‘restrictive’ Federal
legislation, opening the door wide to the ransacking and enronisation
of the ‘thrift’ banking sector, which in turn laid the groundwork for
the subsequent giga-financial scandals that are now being exposed.
President Reagan unveiled this legislation at a Rose Garden
presentation and signing ceremony on 15th October 1982, before an
audience of 200 people. Billed as a major piece of deregulation
legislation, this law represented nothing less than the US criminal
kleptocracy’s charter to ransack and pillage the middle and working
classes. For 50 years, American families had relied on Savings and Loan
Associations to finance their homes; but Reagan now pronounced that
‘outmoded regulations left over from the 1930s Great Depression’ had
been preventing thrift institutions from competing in the complex,
sophisticated financial marketplace of the free-wheeling 1980s.
When signing the bill with a flourish, Regan pronounced: ‘All in all, I
think we’ve hit the jackpot’.
But
those who ‘hit the jackpot’ turned out, predictably, to be the
organised criminal kleptocracy that had infiltrated official
structures, could immediately mobilise criminal funds to buy their way
into thrift institutions, and were embedded inside the corrupted US
intelligence community. A new breed of swashbuckling Savings and Loan
executive sprang up on cue, like weeds, out of the rich soil fertilised
at the October 1982 Rose Garden ceremony.
Among their leaders was the
notorious Neil Bush, then-Vice President George H. W. Bush’s son, who
became a Director of Silverado Savings and Loan, of Denver, CO, and
Andrew Cuomo, the son of New York Governor Mario Cuomo, who tried to
buy Financial Security Savings of Delray Beach, Florida. The former
Governor of Illinois, Dan Walker, bought First American Savings of Oak
Brook, Illinois. Within 18 months of the Rose Garden signing, Edwin
Gray, Chairman of the Federal Home Loan Bank Board (FHLBB) was provided
with a grim, classified report and video, which revealed a swathe of
abandoned, half-finished condominium units financed by Empire Savings
and Loan of Mesquite, Texas: this was when the FHLBB was made aware of
the fact that organised criminal cadres had immediately taken advantage
of the deregulation of the Savings and Loans, and that an open-ended
financial implosion was under way as a consequence. The enronisation of
the US thrift industry was an ‘inside job’ from the outset. Source:
‘Inside Job: The Looting of America’s Savings and Loans’, Stephen
Pizzo, Mary Fricker and Paul Muolo, McGraw-Hill Publishing Company, New
York, 1989, ISBN 0-07-050230-7.
•
Securities Act of 1933: This Act, which followed the 1929 crash and the
Great Depression, was framed in accordance with the interstate commerce
clause of the US Constitution, and requires that any offer for sale of
securities using the means and instrumentalities of interstate commerce
must be registered under the terms of the 1933 Act. Prior to the 1933
Act, the public regulation of securities in the United States had been
governed mainly by State laws (commonly referred to as the ‘Blue Sky’
laws). With passage of the 1933 Act, the patchwork of existing State
securities laws was left in place, to supplement the Federal
legislation. A crucial dimension of the law is that the 1933 Act makes
it illegal to commit fraud in conjunction with the offer or sale of
securities.
Exemptions to the registration process under the Act are extremely
tightly prescribed.
Hence,
except for extremely narrowly defined offerings (for instance, to
groups of no more than 35 investors), securities offered or sold to the
general public in the United States must be registered by the filing of
a registration statement with the Securities and Exchange Commission.
The
prospectus for the offering is generally filed in conjunction with the
registration statement. The SEC itself prescribes the relevant forms on
which an issuer’s securities must be registered, and these forms call,
inter alia, for:
(1): A description of the issuer’s properties and business;
(2): A description of the securities to be offered for sale;
(3): Information about the management of the issuer;
(4): Information about the securities (if other than common stock); and:
(5): Financial statements certified by independent accountants.
It
is illegal for an issuer to lie or to omit material facts from a
registration statement or prospectus. Secondary market transactions may
take place without registration. Under Rule 144A, resales of restricted
securities between ‘Qualified Institutional Buyers’ (QIBs) are
exempted, thus creating a secondary market in restricted securities
among the largest Wall Street houses.
• Securities Acts Amendments of 1975: See:
Securities and Exchange Commission (SEC).
•
Securities and Exchange Commission (SEC): A Federal agency created
under the Securities Exchange Act of 1934, to administer the following
legislation:
(1): The Securities Exchange Act of 1934;
(2): The Securities Act of 1933;
(3): The Public Utility Holding Company Act of 1935;
(4): The Trust Indenture Act of 1939;
(5): The Investment Advisor Act of 1940; and:
(6):
The Securities Acts Amendments of 1975, which ratified free market
determination of brokers’ commissions and gave the SEC authority to
oversee the development of a National Market System.
The SEC has
five Commissioners, appointed by the President of the United States on
a rotating basis for five-year terms. The statutes administered by the
SEC are designed to:
(1): Promote full disclosure;
(2): Protect the investing public against malpractice in the securities
markets;
(3): Require all issues of securities offered in interstate commerce or
through the mails, to be registered with the SEC;
(4): Supervise all national securities exchanges and associations;
(5):
Supervise investment companies, investment counselors and advisers,
Over-the-Counter brokers and dealers, and virtually all other
individuals and firms operating in the investment field.
Source: John Downes and Jordan Elliot Goodman,
‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge:
Barron’s Educational Series, Inc., 2006, s.v. ‘SEC‘.
•
Securities Exchange Act of 1934: This legislation, which governs the US
securities markets, was enacted on 6th June 1934. The Act:
(1):
Outlawed misrepresentation and manipulation, and other abusive
practices in respect of the issuance and marketing of securities.
(2): Created the Securities and Exchange Commission to enforce the
Securities Acts 1933 and 1934.
The primary stipulations of the 1934 Securities Act are as follows:
(1):
Registration of all securities listed on stock exchanges, and periodic
disclosures by issuers of financial status and changes in condition.
(2):
Regular disclosure of holdings and transactions of ‘INSIDERS’ (officers
and directors of a corporation and those who control at least 10% of
equity securities).
(3): Solicitation of proxies enabling shareholders to vote for or
against policy proposals.
(4):
Registration with the SEC of stock exchanges and brokers and dealers to
ensure their adherence to SEC rules through self-regulation.
(5):
Surveillance by the SEC of trading practices on stock exchanges and
Over-the-Counter (OTC) markets, to minimise the possibility of
insolvency among brokers and dealers.
(6): Regulation of Margin
Requirements for securities purchased on credit. These requirements are
set by the Federal Reserve Board.
(7): The provision of subpoena power for use by the SEC in
investigations of possible violations and in enforcement actions.
Source:
John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and
Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series,
Inc., 2006, s.v. ‘Securities Exchange Act 1934’.
• Self-Regulatory Organization (SRO):
These
are Federal organisations established to enforce fair, ethical and
efficient practices in the securities and commodities futures
industries. The practices are referred to as ‘industry rules’ to
distinguish them from regulatory agencies such as the Securities and
Exchange Commission (SEC) or the Federal Reserve Board. SROs include:
(1): All the national securities and commodities exchanges; and:
(2): The National Association of Securities Dealers (NASD),
representing:
• All firms operating in the
Over-the-Counter market; and:
•
The Municipal Securities Rulemaking Board (MSRB), established under the
US Securities Acts Amendments of 1975 to regulate brokers, dealers and
banks dealing in municipal securities. The NASD enforces the rules
promulgated by the MSRB with bank regulatory agencies. Source: John
Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment
Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006,
s.v. ‘SRO’.
• Settlement:
(1):
Of Securities: The conclusion of a securities transaction in which a
broker/dealer pays for securities bought for a customer or delivers
securities sold, being paid from the buyer’s broker.
(a): Regular
Way Delivery and Settlement is completed on the third full business day
following the date of the transaction for stocks (called the Settlement
Date).
(b): Government Bonds, and Options, are settled on the next business
day.
(2):
Of Futures/Options: Represents the final price, established by Exchange
Rule, for prices prevailing during the closing period and upon which
Futures Contracts are Marked to The Market. Source: John Downes and
Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’,
7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v.
‘Settlement’.
• Sherman AntiTrust Act:
Passed
in July 1890, this legislation described in general terms, without the
benefit of definitions, activities that were viewed as monopolistic and
were therefore illegal. Many of the definitions had already been
determined by case law involving court actions by employers combating
the activities of trade unions. The Act forbade ‘every contract,
combination… or conspiracy in the restraint of trade or commerce’.
Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital
Markets’, thesis submitted in partial fulfillment of the requirements
for the Degree of Master of Science, for The Administration of Justice
Department, Mercyhurst College, Erie, PA 13th February 2002; Jack C.
Plano and Milton Greenberg, ‘The American Political Dictionary’, 4th
Edition, Hinsdale, the Dryden Press, 1976, page 328.
• Story’s First Law:
‘All organisations are run for the benefit of those running the
organisation’.
• Story’s Second Law:
‘The interests of the supplier and the consumer diverge’.
• Tax Equity and Fiscal Responsibility Act
of 1982 (TEFRA):
Federal
legislation which reversed some earlier tax reductions, established a
10% withholding tax applicable to dividends, repealed accelerated
appreciation deductions and provided that American taxpayers must
report all sources of income, wherever it was earned anywhere in the
world.
It follows that all receipts received by US taxpayers
since the passage of this Act which have not been reported to the
Internal Revenue Service (IRS) are taxable, which means that all US
taxpayer holdings in offshore accounts that have not been declared for
tax are liable for US tax and also for penalties. It also means that
‘program’ participants expecting their funds eventually to be paid into
offshore accounts may not only be in denial about the fact that they
have been scammed, but may have also allowed themselves to become
co-conspirators in tax evasion with the perpetrators of the scams
themselves. It is standard criminalist practice to procure that
targeted victims are enticed into compromising themselves by the
perpetrators.
• Terrorism Prevention Act of 1996:
This
legislation added terrorism-related crimes as predicates for
money-laundering. Madinger and Sydney A. Zalopany, ‘Money Laundering: A
Guide for Criminal Investigators’, New York: CRC Press, LLC, 1999, page
43.
• Transparency:
(1): In Financial Reporting: Ease of understanding, made possible by
FULL, CLEAR and TIMELY disclosure of relevant information.
(2):
In Securities Transactions, price transparency means access to
information concerning the depth of the market that would enable
detection of fraud or manipulation. Source: John Downes and Jordan
Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th
Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v.
‘Transparency’.
• Trust Indenture Act of 1939:
This
legislation supplemented the Securities Act of 1933, requiring the
appointment of a suitably independent and qualified trustee to act for
the benefit of the holders of securities. The legislation specified
certain substantive provisions for such a trust indenture that must be
entered into by the issuer and the trustee. The law is administered by
the Securities and Exchange Commission (SEC).
• Truth in Lending Act:
Federal
legislation which established disclosure rules that lenders must
observe in dealings with borrowers. The Act stipulates that consumers
must be told annual percentage rates, potential total cost, and any
special loan terms. Source: John Downes and Jordan Elliot Goodman,
‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge:
Barron’s Educational Series, Inc., 2006, s.v. ‘Consumer Protection Act
of 1968’.
• Truth in Lending Act (TILA) of 1968:
This
legislation is designed to protect consumers involved in all kinds of
credit transactions, including (and especially) mortgages. It is
contained in Title 1 of the Consumer Credit Protection Act as amended.
The purpose of the legislation is to promote the informed use of
consumer credit by requiring disclosures about its terms, and gives
consumers the right to cancel certain credit transactions that may
involve a lien on the consumer’s principal home. It regulates certain
credit card practices, and provides a mechanism for the fair and timely
resolution of credit disputes. The law requires the uniform and
standardised disclosure of costs and charges so that consumers can shop
around (thereby promoting competition). The legislation further
prohibits certain practices associated with credit secured on a
consumer’s principal dwelling. The lender must disclose to the borrower
the annual percentage rate charged (APR), which must reflect the cost
of the credit to the consumer. The legislation proved ineffective in
curbing the abuses which were highlighted as a consequence of the
corruption exposures, because many mortgage lenders failed to comply
with the Act’s disclosure provisions, and were not prosecuted or
penalised accordingly.
• Underwrite:
To
assume the risk of buying a NEW ISSUE of securities from an issuing
corporation or Government entity and reselling the securities to the
public, either directly or through dealers. The underwriter makes a
profit on the difference between the price paid to the issuer and the
Public Offering Price, called the Underwriting Spread. Source: John
Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment
Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006,
s.v. ‘Underwrite’.
• Underwriting Spread: See ‘Underwrite’
above.
• Vault Cash Act of 1959:
This
legislation modified the reserve requirements of Federal Reserve member
banks to allow the banks to count their vault cash, in excess of
specified percentages of their deposits, as part of their required
reserves. This was one of innumerable retrograde modifications since
the Second World War which have facilitated covert financial
operations, to the detriment of global financial stability and
integrity. Source: Munn, ‘Encyclopedia of Banking & Finance’, page
589.
APPENDIX:
THE ORIGINAL PONZI SCHEME EXPLAINED:
Charles
Ponzi, an immigrant from Italy to Boston, MA, made millions of dollars
for a brief period, by exploiting his shrewd observation that while
national currencies were fluctuating wildly in 1920, just after the end
of the First World War, the Universal Postal Union (UPU) issued coupons
which were always worth a given amount of postage stamps.
In
those days, European refugees were flocking to the United States,
Canada and Brazil; and often, their only contact with their families
and friends back home was an occasional letter, enclosing a few
dollars. The Universal Postal Union arranged to move the millions of
postwar letters, business documents and messages across national
borders by issuing Postal Reply Coupons.
You bought a Postal
Reply Coupon in your country of residence, and enclosed it with your
letter. Your mother, once she had received the letter, exchanged the
Postal Reply Coupon for stamps at her local post office.
Charles Ponzi told friends in Boston:
‘Everybody’s heard of the Postal Union. They print coupons like these
I’m holding here: Postal Reply Coupons. You can send a letter home, or
anywhere in the world, with these coupons. And you can trade this
coupon for a stamp in any country. I send my mother coupons with every
letter that I write home’.
‘Now, in cooperation with certain
large businesses in our city, I am making a fortune on the Postal Reply
Coupon. Stocks are too risky. Forget it. And bonds, what are they
paying these days? Maybe six percent? Savings accounts at Tremont
Trust, they’ll give you four and a half cents on the dollar. Give them
$100 and they’ll give you back $104.50. I can beat that into the
ground’, Ponzi insisted, beating his cane against the floor. ‘My
investors get 50 cents on the dollar. Place a hundred dollars with my
Securities Exchange Company, and you take out $150. Put that $150 in,
you’ll get back $225. That’s right, in six months, you can more than
double your money’.
How
could he pay 50%, when banks couldn’t even manage to pay 5%? ‘Exchange
rates’, Mr Ponzi explained. ‘Every morning I go down and check to see
how the lira is doing against the US dollar. Usually you get five lire
for a dollar. This morning I checked, and with the war just ended, it
takes 20 lire to the dollar’. While currency rates were bouncing around
like popcorn, Mr Ponzi explained, the Postal Reply Coupon always bought
one stamp. Here’s what I do’.
‘I send my cousin in Parma, Italy,
$1.0. He exchanges the dollar for lire. With the 20 lire ( or 2,000
centesimi), he can buy 66 Postal Reply Coupons (worth 30 centesimi
each, the cost of a letter-sized stamp in Italy). Back in the United
States, each of the coupons buys one stamp, at face value five cents. I
redeem all 66 coupons for $3.30 worth of stamps. The magic happens in
the exchange rate. In America, my dollar buys 20 Postal Coupons. But if
I exchange the dollar for Italian lire, and buy the coupons in Italy,
then return and buy the stamps in America, I get $3.30 worth of stamps
for that same $1.0. My profit margin is 230%’.
‘Yeah, but $3.30 worth of stamps is still stamps’, complained an
attentive listener.
‘I
know’, said Ponzi. ‘So I sell the stamps at a 10% discount through my
contacts with the larger firms downtown in our city. Deducting the
discount, I’ve got $3.0 cash now, from the $1.0 that I started out
with. Now, let’s say, I got that dollar from you. I will pay you back
your dollar, plus 50 cents of interest. Since I just sold $3.0 worth of
stamps, I have a dollar and 50 cents for myself. I’m going to spend a
third of that on my offices and processing overheads, and a third on
commissions and bonuses to my sales people; and then, ladies and
gentlemen, I’m going to pocket the other third and take my wife for a
stroll’.
THE ORIGINAL FALSE PROSPECTUS IS SOON ABANDONED, AND REPLACED BY...
ZILCH
This
was the essence of the original Ponzi scheme. Note that in this
description, Ponzi starts out by exploiting the fluctuations of
exchange rates, and the lack of arbitrage; and note that, by the end of
the explanation, he is simply NOW offering 50% interest, which he pays
out to claimants out of the additional funds he has received from other
investors who are likewise anticipating a 50% return on their
investments, within a short space of time.
The germ of the
idea was derived from the foreign exchange market; but once Ponzi has
realised that people will pour their money his way if they are promised
a 50% return, he can abandon his elaborate explanation (‘his
‘prospectus’) of the exploitation of exchange rate fluctuations and the
tedious task of shipping, receiving, handling and exchanging Postal
Reply Coupons, which gave him the ‘easy money’ idea in the first place.
In
other words, his sales pitch is no more than a now redundant,
expendable illustration – a false prospectus which disguises the fact
that he is really promoting a pyramid selling operation. For he has
realised that all his investors care about is receiving 50% on their
money. How this is to be achieved does not normally concern them.
ALL THEY WANT IS A HUGE RETURN ON THEIR MONEY.
By
December 1920, Charles Ponzi was matching old money with ever larger
amounts of new money. In May 1921 alone, almost $500,000 of new money
poured into the Securities Exchange Company – as 1,500 or more new
customers, lured by the 50% yield offered through advertisements,
sought their share of the huge profits they thought would be
forthcoming at minimal risk. The office now bulged with fat stacks of
dollar bills.
THE FLOOR STARTS TO GIVE WAY BENEATH HIM
But
problems started to arise when Joseph Daniels filed a lawsuit alleging
that he had helped to found the Securities Exchange Company (SEC) with
a loan of $230 worth of furniture plus $200 in cash. Daniels had indeed
provided the beaten-up desks that had been offloaded in the dusty
office, and had let Mr Ponzi have $200 to spark interest in the Postal
Coupons. It wasn’t just a loan, Daniels maintained, now that Ponzi was
drowning in cash. ‘We were partners. I put up capital and property’. On
2nd July, Mr Ponzi was handed a demand for $1.0 million.
The
Boston Post telephoned, and Mr Ponzi told the reporter that he had
indeed bought furniture from Mr Daniels, but that he had never received
any money for investment from him.
But when the newly installed
banking commissioner for Massachusetts, Joseph Allen, read the
newspaper, he wondered: ‘Where did Ponzi come from? Who are his
associates? How is he managing to double people’s money?’
Allen asked Ponzi to pop round to his office, for an
interview. The Securities Exchange Company did not describe itself as a
bank, nor did it offer any banking services.
Therefore, in the
absence of a complaint – and none had yet arrived – the Commissioner
had no jurisdiction to examine Charles Ponzi’s business. At the
interview, Ponzi explained the curiosities surrounding Postal Coupons,
pointed out that money chased money, collected his black hat and coat,
doffed his hat, and bid Mr Allen goodbye.
But Richard Grozier,
city editor at The Boston Post, had always thought that Charles Ponzi’s
scheme was fraudulent; and to initiate what he fancied would be the
inevitable coming débacle, he elicited a comment from one of
Boston’s
leading citizens, Clarence Barron, the owner of Dow Jones & Co and
The Wall Street Journal.
At the end of July 1920, The Boston Post carried a front page story
entitled: 'Clarence Barron questions the motive behind Ponzi’s scheme'.
Theoretically,
Barron admitted, you could indeed turn a profit on the UPU coupons. But
that was the only truth buried within the operation. You could never
earn more than a few thousand dollars, not just because of the trouble
involved in offloading the stamps and tracking the various conversions
driving the process, but because there simply were not enough coupons
available.
France, Romania and Spain had just abandoned the
scheme, a few months earlier. A cursory check with the UPU showed that
they only had a few hundred thousand dollars’ worth of coupons left in
circulation – nowhere near the $10 million or $15 million Mr Ponzi
claimed to be trading. So where was Ponzi getting his coupons from?
Furthermore, the US Postal Service had announced, on 2nd July 1920,
that Postal Reply Coupons would no longer be redeemable in lots larger
than ten. So how was Ponzi converting his coupons into stamps?
Finally, Barron asked, if Ponzi is doubling
everyone else’s money, why does he keep his own funds in regional
banks? The Boston Post knew that Ponzi kept millions of dollars on
deposit at seven or eight New England banks, and that the accounts were
ballooning. How could a man who was paying 100% interest every 90 days,
put up with drawing just 4% on his holdings? Barron concluded:
‘Right
under the eyes of our Government, Mr Ponzi has been paying out US money
to one line, with deposits taken from a succeeding line’ (another bank).
All
of a sudden, all the doors which had flown back on their hinges at the
sight of Mr Ponzi, were slamming tight shut. The Massachusetts District
Attorney ordered Ponzi to cease and desist. His customers demanded
their money back, and Ponzi was eventually jailed for Federal mail
fraud, then deported. He wound up destitute in a poor house in South
America (1).
Reference:
(1). 'How Charles Ponzi pulled it off: Making a fine art out of a
pyramid fraud', International
Currency Review, Volume 27, Number 3, December 2001, pages 51-52.
http://www.worldreports.org/news/150_u.s._financial_market_revamp_is_false_prospectus
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