Guest Post: Organized Financial Crime Is Now The New Normal

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Organized Financial Crime Is Now the New Normal

Today we publish the second half of an important essay by C.D., a correspondent in law enforcement. Part one is here

It's up to us to refuse to participate in a criminal financial system: we should not be doing business with businesses that are repeat offenders.

We could expand this example of vested interests suppressing prosecution of white collar crime to the financial system, more particularly, the stock and bond markets. The majority of the adults in our country are invested either directly or indirectly in the stock market via trading accounts, pension funds, 401Ks, etc. and have a vested interest in making sure that it rises higher and higher.

How many people would be willing to get rid of all of the drug money in the stock market, if they knew their 401K would decrease by 10%? How many people would get rid of all of the various types of fraud in our system, if they knew their pension fund would lose half or more of its value or the interest rate on their Aadjustable rate mortgage (ARM) skyrocketed? How many politicians are going to refuse bailouts of the banksters or call for their prosecution if the banksters can take down the stock market?

When TARP was being voted on the first time, the overwhelming majority of the population was against it. The day after the first vote, the market tanked. Guess what, the next day it was about 50/50 in who wanted TARP to pass vs. those that didn't.

White collar criminals in our big banks and corporations have turned otherwise legitimate businesses into vehicles to commit numerous crimes. They use the corporation or other business entity as both a sword and a shield. The entity is used to help commit the crime and then used to protect them personally from any criminal or civil liability. In my experience, more often than not, a prosecutor will forego charges against an individual and just charge the business entity, because it's a stronger case.

If CEOs started going to jail for long stints, that would be very helpful in cleaning up things in a hurry. If the only downside to a CEOs behavior is that he may have to leave his job and suffer some temporary embarrassment, that's not much deterrent to him engaging in activity where he can make large sums of money. While fines can have some deterrent effect on a company's behavior, their effect is often muted by the fact that the fines are less than the profit from the activity, the cost of the fines can be passed on to customers, and in the case of the banks, the fines are subsidized by the government itself or the Federal Reserve.

It's important to bring individuals to account for their behavior. Company policies and activities were directed by someone or group of people; they don't just happen in a vacuum.

The criminal justice system can't effectively handle a large case load without a tremendous amount of manpower, so it's important to have a good regulatory system in place that can prevent many problems. It's also important to realize that prosecuting someone criminally requires a lot of resources and a significant amount of proof (which can be difficult to obtain) and in the absence of a good regulatory scheme, it can be extremely difficult to stop criminal behavior.

White collar criminals can use any number of excuses to cover up their criminal acts (e.g. miscommunication, misfeasance/malfeasance by subordinates/consultants, ignorance/misinterpretation of the law, bad legal advice, administrative errors, stress, etc.). With many crimes, a prosecutor needs to be able to prove the WCC knew what he was doing or intended to do something, as opposed to negligence or recklessness. Again, that can be difficult.

One often overlooked aspect of WCC is the use of lawyers by White collar criminals to commit their crimes. For instance, WCCs may ask lawyers ahead of time about how to change the system, so that their illegal activities become legal or they'll ask the lawyers how to avoid getting prosecuted for their anticipated or current illegal activities. Then the WCCs can hire connected attorneys who may try to bring political pressure to nix a case, if they can't win the case using the law or the facts. Or attorneys can try to win the case in the court of public opinion, which may help nix a case or at least mitigate the punishment.

The widespread amount of fraud and all of the resulting tangential crimes could not have been committed without the assistance, wittingly or unwittingly, of various attorneys. Numerous attorneys have helped to foreclose on homeowners when they KNEW the foreclosure paperwork was not right in one way or another. Every one of them should be sanctioned up to and including the revocation of their law licenses.

It's interesting to see the different types of language used in describing White collar crime vs. blue collar crime. The press and the advocates for the WCC use various phrases like "too big to fail", "it will damage the market or the economy", "we can't regulate ethical behavior," "we need a truth commission, rather than a criminal investigation," etc. With the first argument the management of a company is perceived as being inextricably linked to the company and that the company is indispensable to the country (e.g. The big Wall Street banks). This is a case where the actors are confused with the play and many people fall for it. The other arguments deal with downplaying the crimes of the higher classes to turn them into lapses in ethics or judgment.

The damage that these criminals inflict on society is typically diffuse over a great many people or area and is often indirect. Other types of crime (e.g. assault, rape, murder, arson) are very direct and discrete. If you steal a little from a great number of people, especially using a company to do it, the likelihood of you being caught is small and if you are caught, it's difficult to prove intent, and if that can be proved, then your punishment is typically relatively light, as opposed to someone who robs a bank.

Look at the number of corporations that have been caught repeatedly and they only pay a small fine, promise not to do it again, and admit to nothing. If you pollute the air illegally, it will diffuse over a wide area and most likely will lead to chronic, as opposed to acute, effects on people. The same can be said of the impacts on fish and wildlife. However, there are times when there are serious acute effects on people and our natural resources.

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.

(Copyright 2012 C.D.)

Thank you. C.D., for sharing the perspective of someone working within law enforcement. Once we accept organized, systemic financial fraud and crime as somehow serving our interests, we have made it "the New Normal." Our complicity will not go unpunished. CHS

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fuu's picture

"Organized Financial Crime" = The Fed.

Pladizow's picture

"Now" the new normal?

fuu's picture

One mind was lagging.

FEDbuster's picture

Just in case you haven't seen this from Ann Barnhardt:

"Ninety Miles An Hour Down a Dead End Street

Posted by Ann Barnhardt - July 12, AD 2012 11:39 AM MST

People are emailing asking what firm I recommend.



The ENTIRE SYSTEM is totally, completely corrupt and therefore NO FIRM IS SAFE. Don't be stupid. Don't be obtuse. Snap yourself out of the Stockholm Syndrome that you are clearly stuck in. Get ALL MONEY out of the ENTIRE FINANCIAL SYSTEM, including stocks, bonds, retirement accounts, futures, EVERYTHING.

But what about . . .

What part of EVERYTHING are you not comprehending?

One. More. Time.

If you can't touch it, if it isn't physically on your property such that you can stand in front of it with an assault rifle and PHYSICALLY defend it, you don't own it, and it could be confiscated/stolen from you at any time, if it ever actually existed at all."

MsCreant's picture

I wonder if Ann would let me buy her a drink? Go, go, go.

That's what I call a bitch slapping right there.


ms1408's picture

"We can either live by the rule of law or the law of the jungle" LOL. We have the rule of law right now buddy.

'The law' is that if you try to set up a financial institution that competes with the TBTF businesses you will be regulated out of business. 'The law 'is that if you refuse to pay your taxes that fund the bail outs and subsidies of the very institutions you are criticizing, you will be locked in a prison cell and shot if try to escape. Your support for the "rule of law" enables both of these immoralities.

The thing that amazes me is that someone will write a long article criticizing some financial institution for fraud, and then ignore the fact that the government just takes your money at gun point. It's like pointing out a butterfly and ignoring a giant elephant standing next to it. The only reason you can get away with this madness is because the majority of people agree with you. On a rational basis, this is pure insanity.

LawsofPhysics's picture

The term "rule of law" is subject to interpretation and corruption.  Who's laws precisely and who's courts?

Better to simply say, nothing will change until there are real consequences for bad behavior, at all fucking levels of society.  We can enforce this as a society or Nature will do it for us.  Same as it ever fucking was.

ms1408's picture

nothing will change until there are "real consequences for bad behavior, at all fucking levels of society."

Agreed. But looking to the government to "regulate" the fraud is to ignore the fact that the government is faudulent by definition. If you take this position you are literally saying:

1. It is bad for people who work at financial institutions to defraud people of thier property

2. It is good for people who work for the government to take peoples' property by force 

So which is it? Are property rights valid or not?

LawsofPhysics's picture

Again, nothing short of a real revolution will restore the rule of law.  As you point out, in order to restore the rule of law now, those in power would have to indict themselves.

Regarding property rights, all "ownership" is valid so long as you can maintain possession by any means necessary.

History is very clear on this.  Possession is the law.  If you can not maintain possession of the property, or any physical asset really, you don't fucking own it.  Life is hard, deal with it, but it never hurts to hedge accordingly - like-minded and well-armed neighbors.

OpenThePodBayDoorHAL's picture

This article makes one key wrong assumption: that these are "otherwise legitimate businesses" They're not. As someone said in the FT recently: "these are criminal enterprises masquerading as legitimate businesses, protected by ignorance, political complicity, and a fat veneer of respectable marble lobbies and mahogany board rooms". These are thieves, pure and simple, always have been.

Omen IV's picture

one of the more bizarre positions i have ever read - so then what - if not government controlling white collar crime?

a posse - with rope and a tree - and presumably a subjective on the spot evaluation?

for me that would make more theater than we have now  - but certain people might take exception if you are on the wrong end of the rope!

Anusocracy's picture

Well, one thing that people don't consider is excluding bad people completely from society. I don't mean locking them up necessarily, but denying them food, utilities, goods and services, etc. If you are not civilized, you are no longer a part of civilization.

It was more than likely that in the deep past every able-bodied person was needed for survival.

Now, the opposite is true. Survival is enhanced without the lowlife scum.

Benjamin Glutton's picture

it is very likely that not one single investment house has adequate funds properly segregated to cash out their customers.



MsCreant's picture

If people really got this, the whole thing would grind to a halt.

I'd expand it to include every financial entity (okay, maybe there is a state bank or local credit union out there somewhere that is not insolvent).

I have an annuity my employer pays into that I cannot get out of. I look at my statement and force myself to focus on the fact that that sum does not really exist. Social security too. It is a mental excercise, but it is also the truth. 

I'd suggest others do the same. Look at your statements. All that kenetic potential you think you have is not there. Let the feeling sink in. Rehearse with it. 

The pain is coming. Train for it. The less attachment you have the better. If you can pull it all out and turn it into cash, you may still have to deal with this feeling if/when the dollar devalues. 

The pain is coming.

The Navigator's picture

I'm with you MsCreant

I look at my 401k statement and Social Security statement and wonder if any of it will be there when it'll be needed.

My physical PM's will help offset if the 401k and SS isn't there but it's not enough to see me thru 20+ years of retirement.

Kobe Beef's picture

In all sincerity, when the USSA collapses, I doubt you'd want to live for another 20 years. If the USSR's collapse is any indication, there won't be peaceful retirement for anyone, metals or no. Rather, a daily grind and pitched battles between your community, FEMA/NORTHCOM, and the Trayvons over access to food and water. There's a lot of ways this thing can break, but I wouldn't bet on being able to retire.

That, or the current parasite State can just muddle on longer than we think. In which we remain slaves and victims of imperial criminality for the foreseeable future.

orangedrinkandchips's picture

We have to set an example.....



maybe tomorrow....maybe not...

Sockeye's picture

"Our complicity will not go unpunished."

darteaus's picture

The "Stockton Syndrome".

dksrox's picture

When you're the only game in town, you get to set the rules everybody else plays by. Since the guys on Wall Street are sitting on all the cash, where else are strapped municipalities supposed to go? The local credit union??? I mean, I don't disagree, but what's the alternative?

Bob's picture

Strange that nobody can seem to get a campaign to withdraw funds from "TBTF" banks to go viral. 

It seems so simple and easy, as an idea at least. 

I wonder why nobody that gets airtime from the corporate media ever mentions (must less promotes) it. 

MsCreant's picture

I am aware it is illegal to promote a bank run, in writing or verbally. But surely there are things one could say...

malek's picture

There has:

I have acted accordingly at end of 2009.

Reactions from friends and girlfriend:
- but I have all these things setup there (accounts, credit cards, deposit box, mortgage, ...)
- I don't feel the smaller bank to be safe/trustworthy
- but I know people who work in my local branch of a TBTF
- blank stare

toady's picture

...and that's why I no longer do business with those criminals. When I learned the phrase 'it's all perfectly legal' it dawned on me that there would be no consequence for TPTB. It's been an uphill battle, but I'm free & clear.

There's a world of hurt coming down. Keep your heads down.

LawsofPhysics's picture

You may "prefer the former" but so long as there are no real consequences for bad behavior, you will have the latter.  Bloody sheep.

GlomarHabu's picture

Relatively few of mankinds actions are anything new under the Sun. What occurs is that new generations suddenly "discover" that evil and wrongdoing are endemic; they then trumpet their newly discovered foilble and go on a crusade. Those crusades tend to dissipate any violent action from occuring since they allow the blowing off of emotions in a series of carefully crafted, but generally useless written articles. It's just what the elites want. They sure as hell don't want us in the streets burning down their homes and hunting them to ground.

Someone point out just when in the history of mankind financial chicanery has NOT taken place. I believe it is something et nunc et semper .... now and forever.

LawsofPhysics's picture

You are correct sir, this is just another turning, now what was that old saying about "the tree of liberty" again?

OneTinSoldier66's picture

"The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants." -Thomas Jefferson

JustObserving's picture

Organized criminal fraud was always the normal.  Now we find out more due to the internet.  The MSM was always complicit in covering up fraud.

How long was te Libor fraud going on?  It seems to be decades.  How long has the manipulation of gold been going on?  Volcker mentions that the Fed wanted gold lower.  Gordon Brown of the UK sold British gold to bail out banks who were short in 1998. Financial fraud has been our constant companion.

lynnybee's picture

then don't play with these people anymore!!    take your god damn marbles and put them in your damn safe !        all my marbles are in my head and in my own possession, fucking criminal bankers.       

alien-IQ's picture

Matt Taibbi said it best: "You put just one of these Lloyd Blankfein types in a real, pound-me-in-the-ass prison, and all this bullshit will stop overnight"

Everybodys All American's picture

The Justice Department's head is Eric Holder who is either inept or crooked. Every state attorney general in the US could indict Blankfein or any of the criminals  and so far no one has shown the desire. Intimidated more than likely. The SEC had an investigation going on with Blankfein and as far as I know it's gone no place. There are countless others. Fraud is permeating the industry like no other time it appears because of the lack of enforcement. I blame Holder but I suppose you could lay blame in countless places.

Somehow no one even gets brought up on charges let alone goes to jail.

Bob's picture

Good thing they got an exemption to the law limiting time of service for Robert "Honey Pie" Mueller over at the FBI so he could continue his great work in the public interest. 

Dixie Rect's picture

I thought labor unions had the corner on the organized crime market


bankruptcylawyer's picture

yea, the rule of law meme obscures the reality that the 'law' in pracitcal measure relies upon authority ,and there can be no authority without a stream of resources dedicated to that authorities' mouth. without food, authority cannot eat, without eating authority is dead, and with dead authority there is no law


hence, law requires food. authority in the ancient days sometimes had more than one job. now, the job of autohrity is authority alone and specializations in authority broken between domestic groups with different tasks.

these jobs require funding, this funding could be given 'voluntarily' but why would anyone voluntarily donate to the authority . there is the free -rider problem, and the soveriegn man problem, and then there is the genuine problem of most people wanting to take by force and not work and create wealth. so the authority must take his food, and this is TAXES.

rule of law is based on authority to tax. it always has been and it always will be. the written 'laws' can be whatever anyone says they are. but without authority and taxation, you are talking about a primitive society. and quite possibly a far free-er one than modern societies of millions of people.


you are correct that giving your taxes supports the authority supported criminal fraud system we call wall streeet, the mic, big brother etc......

but this is a critical mass reaction. it is going to burn itself out upon the suffering it creates in the masses.

people will stop paying taxes when they have none left to pay.

the real paradox is that if you do have a lot of money , you are accused by those in power of cheating and by those not in power of not paying your fair share. this 'unfairness' of 'cheating' is only so because of the relative participation of so many people who feel forced to be in the system. the sad complication however is that billionaires and other people who rely on tax shelters for their wealthy, have helped devise a system that is meant to take wealth by taxation of the lesser classes particularly so that the billions of the insiders who dont' pay taxes becomes that much valuable.

it is a scheme, but layered over that sheme is the implicity notion that you must appear to be participating in the tax system for fairness purposes. hence romeny will not release his tax records or information about cayman island accounts.

this is just darwinian social dynamics of class warfare played out through taxation schemes. after all the biggest privelege of being wealthy is the ability to use your capital for anti-comepetitive purposes, rather than to generate wealth.

who needs wealth so long as you ahve more than the other people. In the land of the blind, the one eyed man is king.

loveyajimbo's picture

Look at the administration, starting with Obummer... he simply refuses to enforce any law that does not immediately benefit HIMSELF.  Holder, Gensler, Shapiro, Geithner... all corrupt.  I wish Mitt would make it a number one campaign stance that he will end the corruption in finance, defense, congress (lobbyists) and the fed... he should announce some cabinet choices, like Bill Black for AG, Jim Grant for treasury, Ron Paul for Fed, Jim Webb for Defense, Spitzer for Inspector general, and Nader for Consumer...

Bob's picture

My wishes run the same way, but the tooth fairy is more likely to do it than either of the Obamney twins. 

tony bonn's picture

"...No reasonable person would knowingly do business with the Mob..."

the statement is true, but the federal government does do business with the mob. or more specifically, the cia did big business with the mob when it murdered john f kennedy. jack ruby was the point of contact and bag man for e howard hunt's payroll operations.....several other mob members were involved.

so if the cia/bush crime syndicate is doing business with the mob, why would a reasonable person not do so?


spine001's picture

Thankyou C.D. for sharing! Your article is to the point and super clear.

My experience from the Corporate side coincides 100% with what you explain from the prosecution side.

The system is rigged so that the prosecution side can never win. Basically my analogy is that the prosecution and regulatory side are playing chess against Kasparov, and they are not even professional chess players. They get creamed everytime and they don't even realize it themselves.

In my old company I always wondered why the continuation engineering people and quality assurance people were so much below everybody else in IQ. After a few years, my naivete and innocence died and I learned the hard truth. No company really wants to find issues after a product is in the maket. The company was doing that on purpose. When the issue really arrived and they couldn't hide it anymore, the top people from other areas woudl be brought in to fight the fire.

The same is true here. And sadly there is no fix in sight, both Obama and Romney are demonstrated crony capitalists.

Until next time,


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