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The New War on Hedge Fund Managers
Yang Yanming was slowly led from his cell in Beijing’s central prison to a waiting van in the courtyard by two burly uniformed guards, his hands cuffed behind him and his head bowed. Once in the vehicle, he was strapped to a gurney, hooked up to an IV, and given a highly concentrated injection of sodium pentobarbitol. Minutes later, a technician checked his pulse, and pronounced him dead. He then pulled out a scalpel, made a long vertical incision down Yang’s abdomen, and deftly harvested his organs. Placed in ice chests, they were rapidly sold off on China’s booming organ market.
The unfortunate Yang was a former stock trader convicted of embezzling $9.52 million from Galaxy Securities during 1997 to 2003. Once arrested, his trial, conviction, and execution were carried out in rapid fire succession in a matter of months. No hanging around death row for decades here, as is common practice in the US. Yanming never revealed where the money went, according to the Beijing Evenings News, possibly because he never committed the crime. We, and Yang’s family, will never know.
The move was part of a broader effort by regulators in Beijing to crack down on rampant corruption in the securities industry. Still, the more people they execute in the Middle Kingdom, about 10,000 this year, the more they remain the same. Great for the human organ business, but not so good for white collar crime prevention.
During the last three decades, a series of politically inspired “get tough on crime” campaigns in the US, started by Ronald Reagan, has produced one of the biggest lock ups is human history. Inmates held by federal and state penal systems has soared from 500,000 to 3 million, and the numbers are growing my 200,000 a year. The American prison system has grown so large that it rivals the old “Archipelago” in the Soviet Union during the 1930’s. The urban legend about the government building a vast secret complex of concentration camps is true.
One out of 100 Americans is behind bars, and one out of 35 is either in jail, or on probation. The cull has been particularly severe among ethnic minorities, with one out of three African Americans either in prison, on probation, or related to someone who is.
There has been a vast expansion in America of the definition of criminality. For example, tax evasion only became an imprisonable offence in 1984. A Supreme Court ruling extended the meaning of “cocaine” to include crack swooped up tens of thousands. Widening the scope of old laws has also occurred in firearms ownership, hate crimes, the environment, pornography, and of course securities offenses. The closure of dozens of state hospitals around the country has also dumped large numbers of the mentally ill into the penal system, making prisons the new de facto mental hospitals.
There has also been a huge bull market in retribution that has contributed to the upsurge. Thanks to three strikes laws, an offender who stole a 95 cent cassette tape from a 7-11 in California got 30 years. Teenaged children in Florida, not old enough to drive, are getting life sentences. Bernie Ebbers and Ken Lay might have gotten away Scott free in the seventies, or at worst, caught five year sentences. Today 25 to life is standard for such offenses, an effective life sentence for a CEO or senior hedge fund manager. Madoff’s 150 year sentence seems pointless. It is not going to get people their money back.
Law enforcement experts, social workers, and even mathematicians all agree that this “get tough” stance is having absolutely no impact on crime prevention. For a start, no one commits a crime with the intention, or even the remote expectation of getting caught. You can raise sentences to 1,000 years and it will still have absolutely no impact.
Many, like Ralph Cioffi and Matthew Tannin, who ran the Bear Stearns hedge funds, are not even aware that their activities might be perceived as illegal. The war on drugs has been a complete failure, with prices lower, narcotics more available, and more kids addicted than 30 years ago, despite DEA budgets running in the tens of billions. With state and federal prosecutors now on the warpath against hedge fund managers, bankers, and aggressive deal makers in real estate, the realm of the illegal is about to undergo yet another enormous expansion. But try telling that to a politician running for office in a borderline district. Crooks are not allowed to vote.
Demographics are the true origin of crime. The number of young males in the population peaked in the early seventies and has been on a downtrend ever since, along with crime rates. Crime is even immune to the economic cycle. You may not have noticed that crime went down last year, even though we were facing the worst economic and employment crisis in eight decades.
Some attribute the fall off in male population to the legalization of abortion by Roe v. Wade in 1973, which led to an immediate drop in newborns tossed into dumspsters, raised by the state, and living a life of crime. Malcolm Gladwell even has a pet theory that falling crime rates are due to the removal of lead from gasoline, also in 1973, which caused lead poisoning, mental illness, and a propensity for violence.
The big problem with the war on crime is that, while generating no tangible results, it is massively expensive. Some $80 billion will be spent incarcerating America’s state and federal prisoners this year, a figure that is bleeding cash starved state and municipal governments white. California spends more on prisons than on teachers. Schwarzenegger has tried to cut corners by packing prisons to 300% of their legal capacity, and by offering health care that a Federal judge has ruled “cruel and unusual punishment.” Most prison gyms and libraries have been converted to dorms packed with three bed bunks end to end. In a desperate measure, the governator is freeing 20,000 non violent prisoners because he can’t afford to house or feed them.
If we adopted Chinese style crime and punishment, we’d save the $65,000 a year it costs to lock up miscreants like Bernie Madoff in high security facilities. Just execute the sons of bitches. The US could recover leadership in the human organ business, and we could convert unused prisons into schools, killing three birds with one stone.
There is another alternative to locking people up and throwing away the key. How about reforming the legal system? Take punishment out of the hands of politicians and bring them more in line with the offense. Perhaps 20% of the Golden State’s 270,000 inmates are serving long terms for possessing small baggies of pot that would earn them at worst a traffic ticket in most other Western countries, or nothing at all. It might also be worth investing in some education for inmates to reduce the appalling rate of recidivism from the current 70%. Prisons officials now give released inmates $25, dump them on a street corner in a crummy neighborhood, and tell them “See you when you come back.” Shorter prison sentences and longer probation might be another economical answer.
This would all require some brave political leadership around an unpopular issue. Don’t hold your breath. In the meantime, check out this cool link to the used kidney market at http://www.wired.com/medtech/health/news/2007/05/india_transplants_prices The next kidney up for sale may be yours.
For more iconoclastic, out of consensus analysis, visit www.madhedgefundtrader.com, where conventional wisdom is drawn and quartered daily. You can also hear me in person weekly by listening to Hedge Fund Radio by clicking here at http://www.madhedgefundtrader.com/Hedge_Fund_Radio.html
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The Chinese were kind to that man. According to the Epoch Times, the Falun Dafa prisoners have their organs removed while alive without drugs. And worse, Western medical insurance will pay for organ transplantation. Israel of course only removes organs from the dead, but will perhaps target people for death. I also see that CATO institute wants to market human flesh for the hungry so I feel the West is not far behind China.
Soylent green.
Non-violent criminals should not be locked up, it would be much better to have them free to pay back whatever they stole. Of course, the gulag system in the US is very lucrative, guards in Ca and NY and making better than a hundred Gs a year with a very generous pension plan. Prisons are big business, so you will never see any kind of reform.
Yep, a lot of laid back junkies will be all over paying back society.
Who are we protecting from laid back junkies? Let them out and leave them alone, we've got enough problems.
Did not find the reference from Ciceron, but those are worth translating:
Ciceron On Rome as ally of Justice to Rome criminal
7) Itaque illud patrocinium orbis terrae uerius quam imperium poterat nominari. Sensim hanc consuetudinem et disciplinam iam antea minuebamus, post uero Sullae uictoriam penitus amisimus; desitum est enim uideri quicquam in socios iniquum, cum exstitisset in ciues tanta crudelitas. Ergo in illo secuta est honestam causam non honesta uictoria. Est enim ausus dicere hasta posita, cum bona in foro uenderet et bonorum uirorum et locupletium et certe ciuium, praedam se suam uendere. Secutus est, qui in causa impia, uictoria etiam foediore, non singulorum ciuium bona publicaret, sed uniuersas prouincias regionesque uno calamitatis iure comprehenderet.
(28) Itaque uexatis ac perditis exteris nationibus ad exemplum amissi imperii portari in triumpho Massiliam uidimus et ex ea urbe triumphari, sine qua numquam nostri imperatores ex transalpinis bellis triumpharunt. Multa praeterea commemorarem nefaria in socios, si hoc uno quicquam sol uidisset indignius. Iure igitur plectimur. Nisi enim multorum impunita scelera tulissemus, numquam ad unum tanta peruenisset licentia, a quo quidem rei familiaris ad paucos, cupiditatum ad multos improbos uenit hereditas.
Cum igitur tanta uis iustitiae sit, ut ea etiam latronum opes firmet atque augeat, quantam eius uim inter leges et iudicia et in constituta re publica fore putamus
Cicero (106 B.C.–43 B.C.)
I. The First Oration Against Verres:
http://www.bartleby.com/268/2/9.html
"Madoff’s 150 year sentence seems pointless. It is not going to get people their money back."
What's your point? What do you suggest?
It seems like you are saying we should either execute people or let them go. You're nutty.
Let me appologize in advance. I should have said, "That's nutty"
Trash pickup along the freeways. Day after day after day after day. If our Justice system were not so compromised we would have crack waste disposal teams. Garbage picking up gargage. Oh the irony!
I read a little while back Madoff had a collapsed lung from falling off his bunk.
Oh, here it is:
If I recall, Stanford didn't get along with his cellmate very well either:
If you can't beat the crap of a hedge fun manager- who can you beat the crap out of?
You just want to take all of our freedoms!
"Many, like Ralph Cioffi and Matthew Tannin, who ran the Bear Stearns hedge funds, are not even aware that their activities might be perceived as illegal."
agreed...everybody knows fraud and theft are legal on Wall Street...
Don't let up on those political contributions madhedgefundtrader you might be next.
I can't say I agree with Chinese style crime and punishment because that is just brutal and inhumane.
Why don't we just legalize marijuana? My god man, that would save us not only money on incarceration fees but would produce billions in tax revenue!
I think Gordon is right, we are headed towards Nazi Germany, Lenin, Mao style tyrannical governance and it scares the shit out of me.
Taxation is also a manifestation of power and control for the sake of power and control. With the ability to create an infinite amount of money there is no reason to tax, unless you have more sinister intentions, such as 1) controlling prices 2) redistribution of wealth for political gain.
Where does one get to exercise Federal Jackboot Behavior with the widest degree of incompetence, aggression, and impunity? The bottum wrung! The Bureau of Alcohol, Tobacco, and Firearms - fancy name for the Federal vice squad. If you can't get into the Secret Service, the CIA, the FBI, or US Marshalls the ATF is always expanding!
What does that have to do with taxation? Their Commander-in-Chief is Timothy Geithner. The ATF is the de facto police unit of the Treasury.
Want to know more about career options and you like gunz?
http://www.youtube.com/watch?v=5KdZgk9d6WU
granted I love drugs, but cmon. you have to legalize the crap and stop fighting it. you think the temperance movement worked whatsoever?
So you legalize it, do you think the people who dont mess with it are going to start a nasty habit since it is legal?
The bigger problem that keeps boiling up is down south in Mexicana...the drug cartels are killing 10 to 1. You legalize drugs, save the $, make the $ and make this place a safer planet.
until then, fight, fight, fight and keep on losing...
it is a no win sitch.
The war on drugs is a big money "career making" endevour. Thats why it is so big in the US. Another heinous wast of our money.
Just "kill em all" like Metallica said...
so wait...im on the street right now, sick, hungry, cold. Why not just commit a crime and get:
1.) health beneifts
2.) great work out facilities
3.) 3 squares a day
4.) access to the greatest criminals on earth so we can plot our next crime...
kill the sum bitches! You want to teach a lesson?
they dont care about life..we do!
In December 1998, Eric Schlosser, a correspondent of The Atlantic, wrote a brilliant article on The Prison-Industrial Complex. The problem has only gotten worse. But I can tell you that white collar crime is treated more severely in the US than in Canada. When I got out of university, I consulted the Canada Revenue Agency's Special Investigations department. I was baffled at how many tax evasion cases were being settled out of court for a fraction of the money owed. In the US, they'd lock them up for years. And we are taking about millions in white collar fraud.
Like so many other things that should remain functions of the state, corrections is being outsourced to 3rd party contractors. There is big money in jails. Therefore the corrupt mechanism that evolves rapidly to "keep the beast fed" is already well on its way in the USA.
"You should be coming up for parole but we need a the headcount to make eps estimates" etc. etc.
Juvenile corrections is a corrupt shambles (PA just one recent example) in the USA as well.
The US incarcerates more / 1000 than just about any other "politically stable" country.
Feed the beast!!!!
"There has been a vast expansion in America of the definition of criminality. For example, tax evasion only became an imprisonable offence in 1984."
Tell that to Al Capone
+1
USA, unfortunately, is headed the way of Germany before WWII. Get out while you can.
Frankly, I am a bit nervous.
My father said, "the similarities are painful to watch,"
The problem is that there is no place that the US government can't go in some form or another.