Drug Money

What wasn’t said at the Senate hearings: too-big-to-jail is just part of the problem

It's an odd question, we know - especially ahead of today's Stress Tests, but given today's testimony on assessing the bank secrecy act, apparent trouble-maker Elizabeth Warren pokes and prods (correctly we would add) at the surreality that exists between the Department of Justice, The Treasury, and the financial system. David Cohen, Tom Curry, and Jerome Powell dodged bullets and blame, "does that mean essentially we have a prosecution-free zone for large banks in America?" But Warren wasn't going to be fobbed off with useless banter as she pointed out, "if you're caught with an ounce of cocaine, the chances are good you're going to go to jail... for the rest of your life. But evidently, if you launder nearly a billion dollars for drug cartels and violate our international sanctions, your company pays a fine and you go home and sleep in your own bed at night - I think that's fundamentally wrong." Indeed Ms. Warren.

Anyone who spends any amount of time on the internet has seen them. They are the moonbats, the wingnuts, the whackjobs, the Conspiratorialists. They are America’s new Lunatic Fringe, and their numbers are growing. To the uninitiated this all seems rather humorous, albeit slightly unsettling.  It would be both wrong and unwise just to slough it off as the ramblings of the insane.  The reason such beliefs are gaining favor is because many Americans have lost faith and lost trust in the government and in America’s elected leadership.  Given what has happened over the last decade, this is not only understandable, it is even, in an odd way, reasonable.  A continual drift to the fringe can be expected because of the many very real things that make the foolish things suddenly more believable. The American people are well aware they have been lied to by the leadership. They know that a lobbyist has an infinitely greater chance of getting his way than an entire nation of voters. When trust is gone, everything becomes an affront, a conspiracy, a power grab by the elite. 

Think about it – a substance which makes one feel good, promotes a feeling of well-being and confidence…..what is the problem with that? The problem, as I explained to all my teenagers, is not that drugs are inherently bad per se, it is the medium to long term consequences of drug use that inevitably leave one worse off and forces one to make decisions one would not normally make e.g. selling your mother’s wedding ring for drug money. Like the good pseudo-parents they are, the governments have (probably correctly) stepped in and outlawed drugs and their use. But there are other substances which also make one feel good, promote a feeling of well-being and confidence but is just as dangerous. With this substance the government does NOT limit use but promotes it! It is in fact the grower and distributor! What is this stuff? Hint …. Comes in two flavours: money (present money) and credit (future money).

Presenting Dave Collum's now ubiquitous and all-encompassing annual review of markets and much, much more. From Baptists, Bankers, and Bootleggers to Capitalism, Corporate Debt, Government Corruption, and the Constitution, Dave provides a one-stop-shop summary of everything relevant this year (and how it will affect next year and beyond).

What’s worse than unjust and ineffective laws like the failed War on Drugs and the failed sanctions on Iran? Unjust and ineffective laws that apply to ordinary folks, but not to banksters. Once a certain segment of society becomes protected from criminal liability, that society has travelled a long way down the road to feudalism, to a caste system, to serfdom.

“The Government Has Bought Into the Notion that Too Big to Fail Is Too Big to Jail”

There are an awful lot of people who are crapping in their pants over this development

In today's episode of blast from the past, Bloomberg's Jonathan Weil takes us on a time journey, which presents the Too Big To Fail bank problem from a different perspective: that of the Cocaine Cowboy roaming the streets of Miami in the late 1970s and early 1980s. Just like today's big banks they were untouchable; just like today's banks they were collaborating and existing in perfect symbiosis with the Federal Reserve; just like today the Cocaine Cowboys existed in an untouchable vacuum courtesy of endless bribes to the local law enforcement and judicial officials, and just like today, the TBTF institution du jour isn't "merely an economic problem. It is a great moral failing of our society that poisons our democracy." Back then, Ronald Reagan stepped in just when Miami (whose real estate market had soared in 1979-1981 courtesy of rampant crime and money laundering: hint hint NAR anti money-laundering exemptions) was about to be overrun, forming a task force that in the nick of time restored law and order. Today we are not that lucky, as there is not a single politican willing to risk it all just to eradicate the modern version of a classic scourge: only this time they don't hand out 8 balls; they give away 0% introductory APR cards and 3 Year NINJA Adjustable Rate Mortgages. Both however get you hooked for life: either on drugs or on debt. Will someone step up this time and form a task force to eliminate the second coming of the Cocaine Cowboy? Sadly, we don't think so. At least not until the next great crash happens.

Ultimately, we should not be doing business with businesses that are repeat offenders; it's kind of like Stockholm syndrome. We keep on allowing ourselves to be abused and even protect our abuser. Unless and until the business changes their ways and assists in the prosecution of White collar criminals, we're going to keep on having problems in how our society functions. Why our local governments continue to do business with the big Wall Street banks is beyond me. In many cases, it appears that the management decided to incorporate fraud into their business models. No reasonable person would knowingly do business with the Mob, but we continue to do business with these banks which have been run just like organized crime. We can either live by the rule of law or the law of the jungle. I prefer the former.

Just because there is already an overflow of confidence in the financial system, here comes the Senate's Permanent Subcommittee On Investigations with a 340 page report detailing how HSBC "exposed the U.S. financial system to a wide array of money laundering, drug trafficking, and terrorist financing risks due to poor anti-money laundering (AML) controls." Of course, since HSBC is one of the world's largest banks, what it did was not in any way unique, and it is quite fair to say that every other bank has the same loose anti-money "laundering" provisions. What HSBC was likely most at fault for was not providing sufficient hush money to the appropriate powers in the highest US legislative administration. But at least tomorrow we will have yet another dog and pony show, accusing that HSBC did what the NAR does every single day. Because let's not forget that the National Association of Realtors lobbied for and received a waiver for anti-money laundering provision regulations: after all how else will US real estate remain at its current elevated levels if not for the drug, blood, and fraud money from various Russian, Chinese, and petrodollar kingpins, mafia bosses and otherwise rich people who need to launder their money in the US, in the process keeping Manhattan real estate in the stratosphere? But one can't possibly pursue the real truth if it just may impair the fair value of that backbone of honest, hard-working US society: still massively overpriced housing in a world in which those who need mortgages will never get them.

This brings up a lot of interesting legal questions. 

If there comes a time when the best move forward is to sell most of our Gold and switch to another asset class, one more likely to survive the transition intact, will we be able to see this as obvious and a no brainer?

Part four of David DeGraw book "The Road Through 2012: Revolution or World War III.”: "Now that we have an understanding of how the Global Banking Intelligence Complex ran operations through BCCI, let’s look at how some of BCCI’s key players kept operating after the bank was finally shut down. As discussed in the last chapter, during the 1980s and early ’90s, the CIA worked in partnership with BCCI in what was, at the time, the agency’s largest covert operation ever, pumping an estimated $10 billion into funding the Afghan Mujahideen. Through this operation, Osama bin Laden’s al Qaeda network was formed. Bin Laden had accounts in BCCI and ran CIA/BCCI-funded camps."

The United States and the NATO allies are preparing to disengage and soon withdraw from Afghanistan and even the most vocal advocates of the "long-term commitment" do not anticipate more than five years of active US and NATO involvement. All the local key players — in Kabul, Islamabad, and countless tribal and localized foci of power — are cognizant and are already maneuvering and posturing to deal with the new reality. Irrespective of the political solution and/or compromise which will emerge in Kabul, the US is leaving behind a huge powder keg of global and regional significance with a short fuse burning profusely: namely, the impact of Afghanistan’s growing, expanding and thriving heroin economy. The issue at hand is not just the significant impact which the easily available and relatively cheap heroin has on the addiction rates in Russia, Europe, Central Asia, Iran, Pakistan, and Afghanistan, and the consequent public health, social stability and mortality-rate issues. In global terms, the key threat is the impact that the vast sums of drug money has on the long-term regional stability of vast tracks of Eurasia: namely, the funding of a myriad of “causes” ranging from jihadist terrorism and subversion to violent and destabilizing secessionism and separatism.