Incarcerate Corzine

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The Daily Reckoning | Friday, December 9, 2011 The long, slow death of growth...and what it means for this tired world, Corzine to Congress: Oh, you mean THAT $1.2 billion...um...er...ah, Plus, Bill Bonner with more on his new theory of government... ------------------------------------------------------- External Advertisement The American Retirement Solution Nobody’s Talking About... It’s the most viable retirement solution for the 21st century...a way you can retire like a king on as little as $1,700 a month. But no Presidential candidate or member of Congress is going to tell you about it. And the financial elite aren’t talking, either... Yet the Social Security Administration reports more than half a million Americans have already taken advantage of this solution... They’ve effectively sidestepped the recession to retire comfortably...even if they never saved a dime. You can easily do it, too. Click here for the full story...   The End of an Age What Happens When the World’s Economic Growth Engine Goes Kaput   Bill Bonner Reckoning this day from Baltimore, Maryland... Dow down 198 points yesterday...back up 178 points this morning. Why? Blame Europe. Yesterday the Europeans were in disarray. But today, apparently, they’ve got things all sorted out...again. Europe is the world’s biggest economy. It is menaced by bank and government debt defaults. It is growing old and has far more social spending obligations than it can afford. It is paralyzed by competing national governments and decentralized financial institutions. It can say ‘drop dead’ in 17 different languages. And if Europe goes into a deep or prolonged economic slump, the rest of the world follows. Because Europe is a big customer, not only for Asia, but for America too. The only way out of the debt problem for Europe is growth. Austerity alone won’t do it. Europe’s debts can only be serviced if the economy grows. Not that we’re counting on it. On the contrary, we’re guessing it won’t happen. Europe’s social spending can only continue if there is growth. Without growth, everything goes bad. Debts can’t be paid. Public workers can’t be paid. And neither the stock market or the bond market are worth nearly as much as people think they are. Everybody assumed growth would continue — even if it were interrupted from time to time by recession. Every recession since the ’40s has been a relatively quick and relatively painless pause, not a major change of direction. But now, something seems to have changed. Maybe it is a Great Recession, as some call it. Maybe it is a Great Correction, as we call it. And maybe the age of growth is over. What a helluva thing that would be if it were true. When people lent money to government and private borrowers they were betting on growth. When the government extended its promises of pensions and health care, it was counting on growth. Take away the growth and the credits and promises turn bad. And if they’re bad, the whole capital and government structure is in danger. Without growth almost all the world’s major banks will go broke. Without growth, every government in the developed world will default (or worse). Without growth, the world we have known falls apart. But why would growth stop? We don’t know. But it stopped in Japan. Today’s output in Japan is actually lower than it was in 1991. What happened? Banks were over- indebted. Corporations were over-extended. Real estate and housing were over-bought. The Japanese government has been able to hold things together...but only by over-doing it itself. Now, it has such heavy debt that the home islands may sink under the weight of it. Stocks and property have lost about 2/3rds their value. There are no more jobs than there were 20 years ago... And still no sign of growth. Could Europe go the same way? Yes, it could. How about America? Ditto.   US Gov’t Igniting Secret Oil Boom? So far the US Government has pumped a huge $980 million into a new technique that could quadruple American oil reserves... Just where is all of that money headed? Who stands to come out on top? Find out the details here in this FREE presentation... The Daily Reckoning Presents Incarcerate Corzine   Eric Fry If wishes were horses, beggars would ride, according to a 16th century British proverb. Continuing that logic, if wishes were $1.2 billion of missing client assets at MF Global, the company’s former CEO, Jon Corzine, would not be a criminal. But alas, wishes are neither horses nor missing client funds...so beggars don’t ride and CEO’s that “misplace” $1.2 billion of client funds are criminals. Does Corzine deserve his day in court? Absolutely. Let’s give him several days in court...after which let’s give him several years in jail. Perhaps there is a legitimate defense for Corzine’s overtly indefensible act. But we pity the poor defense attorney who has to come up with that one. In the heavily regulated, frequently audited and continuously marked-to-market world of broker-dealer operations, $1.2 billion does not simply “go missing”...and if it does, the CEO absolutely, positively knows about it, if he did not directly authorize it himself. Were it not so, dear reader, Mr. Corzine would not have appeared before Congress yesterday with the lamest of all possible defenses. He would not have delivered a series of “oh my gosh,” “gee whiz,” “golly gee,” “I wish I knew what happened,” and “shucks, I feel awful” remarks. “I certainly would never intend to direct or have segregated funds moved,” said the über-sophisticated former CEO of Goldman Sachs. “I simply do not know where the money is.” Hard to believe? Not at all. It is impossible to believe. Goldman Sachs built an empire on one simple principal: Know where the money is. A lifelong “money man” does not take the helm of a “money business” without knowing exactly where the money is and what that money is doing. That defense is preposterous, ridiculous, absurd, unbelievable and utterly false...as Corzine’s days in court will unquestionably prove. To provide a bit of context, the remarks of Jon Corzine, the newly installed CEO of MF Global seem far more illuminating — and credible — than the remarks of Jon Corzine, the recently dismissed CEO of MF Global. “In May 2010, on his first conference call [as CEO] with analysts, Mr. Corzine made clear he wanted to take big risks,” The Wall Street Journal reports. “‘As he seeks to realign the brokerage, Corzine said MF Global will begin taking principal risk across most of its product lines,’ reported Dow Jones. In other words, MF would increasingly bet its own capital, instead of simply servicing clients. MF Global created a new proprietary trading desk...and Mr. Corzine began making the bets on European sovereign debt that would total $6.3 billion and eventually wreck the business. “MF Global’s new trading frenzy might have attracted even more attention,” the Journal continues, “if Mr. Corzine had hidden his biggest bets. His purchases of European government bonds added up to several times MF Global’s [net worth]. But by using a ‘repo-to- maturity’ technique, he was able to consider them ‘sold’ for counting purposes and therefore they disappeared from MF Global’s balance sheet.” Seems a bit Enron-esque, doesn’t it. Enron was, of course, the massive fraud perpetrated a decade ago that prompted the anti- corruption Sarbanes-Oxley financial regulation bill, which then- Senator Corzine voted for. “It’s really rather simple,” writes Karl Denniger in The Market Ticker, “No more off-balance sheet anything — anywhere. There is only one purpose for such ‘instruments’ and games — hiding the amount of risk you have on and exactly where and how you are exposed. There is no other reason for these vehicles; if you are willing to take the risk you should have to do so in the open on your balance sheet where it can be seen. “Next,” Denninger continues, “enforce Sarbanes-Oxley. Start with indictments. Sarbanes-Oxley, which Senator Corzine voted for, makes the CEO and CFO responsible for knowing — not merely responsible for attesting to what they [happen to] know — and it also makes them personally responsible for the sufficiency of internal controls. ‘I didn’t know’ was a common defense after the Tech Wreck began and it got many executives off — Sarbanes-Oxley was passed to specifically deny executives this defense. “Last,” says Denninger, “make it a criminal felony to operate a financial firm holding customer funds of any sort for any period of time — even one day — while ‘underwater.’... That would do it... We must put a stop to this crap.” Agreed. Let Corzine be the first high-profile test case under the legislation he himself endorsed. I think the term is “poetic justice.” Some of you may be saying, “Hey Eric, hang on. Corzine may be innocent. And even if he is guilty, give the guy a break. Let him defend himself.” I agree...completely. Whether the man be innocent or guilty, let the due process begin...immediately. Let the due process begin — the identical due process that never managed to gain any traction during the serial financial rape of 2008, otherwise known as the Credit Crisis of 2008. In the midst of that crime scene — featuring one infamous Treasury Secretary and a cabal of infamous finance company CEOs — due process went into hibernation. Many were the victims of the institutionalized fraud — and cover-up — that produced the 2008 crisis. Zero were the indictments of suspected perpetrators. Maybe there were no criminals in that circumstance. Maybe the whole thing was just a great, big tragic accident. But why deny the criminal justice system in the United States the opportunity to air the facts of various suspected frauds, weigh the evidence and render a judgment, innocent or guilty? Due process does not merely exist to punish the guilty; it also exists to protect the innocent, like the folks who can’t find their money inside their MF Global accounts. One could argue that if due process had been allowed to operate during the aftermath of the 2008 crisis, the MF Global tragedy might never have occurred. I’m not asking that Corzine go to jail, at least not without a trial; I’m just suggesting that “Justice” puts her blindfold back on. Lots of people break laws...sometimes even former Senators. In fact, would you believe it, sometimes a former Goldman Sachs CEO is also capable of breaking a law or two. If Corzine didn’t break any laws, so be it. Let him present his case in court in the full light of public scrutiny. But if he did break a law or two, there’s a special housing development for him on New York’s Upper East Side; it’s called Rikers Island. And by the way, the Statute of Limitations has not run out yet on the probable crimes of the 2008 Crisis. So after incarcerating Corzine, how about we prosecute Paulson? Regards, Eric J. Fry, for The Daily Reckoning   Cancer “Magic Bullet?” Small Biotech Set to Rocket? A little-known biotech company is making medical history... but with FDA fast track review status for their cancer treatment, this small company might not stay “little-known” for long... So you must move fast if you want to get in on the ground floor of what could be the biggest medical breakthrough in decades... Click here to learn more now.   And now back to Bill Bonner with the rest of today’s reckoning from Baltimore, Maryland... More Governmental Insights: Insiders, Outsiders and the Question of Divinity   Bill Bonner We arrived home yesterday in the midst of a major rain squall. Water dripped from the ceiling of the kitchen in several places. Pools of it had formed on the soaked plywood. The tide was rising in the basement too. The plastic over the windows had been ripped by cats. Wind and rain blew through the flapping holes. The makeshift furnace was running, but it made little headway against the prevailing winds and falling temperatures. This does not seem like the way your august Daily Reckoning editor should live, does it? Which is the point we made to Elizabeth just before she got mad. Earlier this year, Elizabeth had decided that it was time to renovate our house. But the renovations did not go as expected, so when we returned from Europe we found ourselves practically homeless. Now, we live in a construction site. It’s not too bad when the sun is shining and the weather is nice. But when the weather turns bad, as it did yesterday, it is miserable. “How long are we supposed to live in this place?” we wanted to know. “Stop complaining...it will toughen you up.” “I’m already tough enough. I’d like a little comfort.” “Comfort is for the weak and the old. You don’t want to be weak and old, do you?” “Achoo! I think I’m getting pneumonia.” “You’re the one who is always extolling the virtues of simplicity. Stoic philosophy and Spartan living, isn’t that your recommendation?” “Yes, but only when it is warm.” “Couldn’t you think of it as an adventure? Like camping out. And it will only last a little while longer. The windows have been ordered. The tile is coming in soon. They’ll be able to get this place back together pretty fast.” “Achoo! I hope I can last that long...” *** You’ll recall that two days ago we introduced our new theory of government. Of course, we are not entirely serious. And not entirely unserious either. But it hardly rises to the level of a theory. It is more like an insight: Government is the natural phenomenon wherein the “insiders” take wealth, power and status from the “outsiders.” They may provide a useful, even necessary, function — such as keeping the peace. Or they may not. They sometimes redistribute wealth among the outsiders. Sometimes not. They sometimes claim to be acting in the name of the greater good...and often do not. Sometimes they claim their privilege from God; sometimes, they don’t bother. But they always take wealth, power and status from those who are not among the insiders. We’ve already seen how a small group of Romans were able to reach beyond their home town, for nearly 1,000 years, taking wealth from people on the outside. One tribe fell under their control. Then another. Then, one town. And another. And always the power, prestige and wealth flowed back to Rome. But not all Romans benefited in the same way. Rome itself was divided. During the Republican period the insiders were the leading families who controlled the Senate. Then came the dictators, the emperors, and the scalawags who were able to get control of the government. Often, they were military men, popular or cunning generals who rose through the ranks, murdered their rivals, and took the reins of power for themselves. Each brought in new insiders...and kicked out some of the old ones. Rome sizzled with intrigue...and sometimes erupted into open warfare, with one group of insiders battling it out with another. After Rome fell, barbarian tribes swept over Europe. Local strongmen were able to set up their own governments. There was little theory or justification involved. They used brute force to take what they wanted. Then they settled down to govern. One local lord provided protection from other local lords. All demanded payment, tribute, wealth and power. In the largely un-moneyed economies of the Dark Ages, taxes were in the form of a share of output...and/or days of labor. A serf typically worked one day in 10 for his lord and master. The local warlord and his entourage were the insiders. They took from the outsiders as much as they could get away with. Or as much as they thought it prudent to demand. Some even asserted a droit du seigneur, known in France by the more carnal expression “the right to the thigh.” The local chief demanded the right to deflower the brides of his peasants. Even as recently as the beginning of the last century, Kurdish chieftains claimed the right to bed Armenian brides on their wedding night. As the Dark Ages progressed, government became less locally peculiar. Across Europe, serfs, lords, and vassals knit themselves together into the feudal system. One governed a small area and was in turn governed by another, who governed a bigger one. At the top was the king, who owed his allegiance to God himself. Justifying and explaining the phenomenon of government also evolved. How to make sense of it? Why was one man powerful and rich and another weak and poor? Europe was Christianized by then. All men were supposed to be equal in God’s eyes. How come they were so different in the eyes of each other? Reaching back into antiquity, the doctrine of the “Divine Right of Kings” was developed to explain it. Scholars did not maintain that kings were divine, because that would undermine the foundations of Judeo-Christian monotheism. Instead, they claimed that kings had a special role to play, that they were appointed...and anointed, by God (through his ministers in the church of St. Peter)...to rule. Some people thought the kings were descended directly from the line of Jesus Christ. Others thought that God gave kings a “divine” right to govern in His name. In the fixed order of the world, each person had a job to do. One was a hewer of wood. Another was a drawer of water. A third was a king. Each man did his duty. Scholars in the middle ages spent a lot of time on the issue. As a theory of government it seemed coherent and logical. But there were traps and dead ends in it. If the right to rule were given by God, man could not contradict Him. But men did. One divinely-appointed ruler met another divinely-appointed ruler on the field of battle. Only one could win. What kind of game was God playing? And if God granted a man the right to rule other men, did that mean that every order he gave must be obeyed, just as though it had come from the mouth of God himself? And what if the king seemed not to be doing God’s work at all? Adultery was clearly a no-no. God disapproved of it. But kings often made it a habit and a sport. Did not the king defile his body and betray his Lord? In an effort to explain away the problem, scholars put forth the idea that the king actually had two bodies. One sacred. One profane. But which was which? More to come... Regards, Bill Bonner for The Daily Reckoning ------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com When Consumers Stop Consuming More on a New Theory of Government... By the Numbers: A Closer Look at the Real Wealth of US It Begins: Markets Await News from the Eurozone Summit Brazil Quietly Scraps its Tax on Foreign Investment China Still Finding Ways to Gain Wider Renminbi Distribution The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. 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