Tag Archives: City of London

William Black on the deregulated race to financial ruin

On Saturday [Oct 6th] William K Black, Associate Professor of Law and Economics at the University of Missouri-Kansas City and a former bank regulator, spoke again with Max Keiser on the second half of his tri-weekly Russia Today programme, Keiser Report.

The discussion ranged from how major financial criminals are protected by Deferred Prosecution Agreements under the disastrous tenure of Lanny Breuer as Assistant Attorney General for the Criminal Division of the US Department of Justice, to how, more generally, the City of London became such an important player in the international deregulatory race to the bottom:

Let’s begin with what Black had to say about the UK Financial Services Authority (FSA) and their part in the London Interbank Offered Rate or Libor Scandal [19:30 min into the show]:

Max Keiser: We recently saw the rigging of global interest rate markets Libor. The FSA says they will in the future prosecute bankers involved in rigging Libor. The overwhelming evidence, including all of the emails, suggests this was a prosecutable racket. Why can’t they prosecute the crime that has happened in real time, right now?

William Black: You used the word ‘can’. It has nothing to do with ‘can’. ‘Can’ refers to ability. This is a problem of ‘will’… You can’t create a competition in laxity, which is exactly what the FSA deliberately did. It competed with the Securities and Exchange Commission in the United States [SEC] and the CFTC, the Commodity Futures Trading Commission, and of course Congress, to who can have the absolute weakest regulation.

If you do that, you’re never going to have regulatory leaders with backbone. And you’re never going to have staffers who often have backbone, because why would you go to work for an entity that exists to serve the banks as opposed to serving the people. Good people will leave in those circumstances. And so what you’re seeing is the FSA – and by the way the Bank of England – continue to be the land of the invertebrates. Where if you have any backbone, you’re not allowed.

MK: [referring to the party political conferences] None of the [party] leaders on the local television address the fact that London is a cesspool of regulation – that it won the competition to have the least biting regulatory framework and that’s why the global economy and financial markets are in such disarray…. How are we going to rectify this, what do you suggest?

WB: Well, first let’s think out that if you have a competition in laxity, everybody loses. Everybody ends up with crappy regulation, and that’s exactly what happened throughout the Eurozone and in the United States. The only way to win a competition in laxity is not to engage in the competition.

Let me give you two specific examples, from a conference I was at just last week in Baltimore. Brooksley Born, one of the heroes who issued the famous warning about Credit Default Swaps, and got swashed by that bi-partisan coalition of the Clinton administration and Alan Greenspan, and Phil Gramm said that as soon as the FSA got created, then leaders – senior leadership of the FSA – began coming to the United States to industry conferences, and saying you should leave America and do your deals and relocate in the City of London, because we will give you weaker regulation.

And then a guy who had been with the Securities and Exchange Commission for many, many years said that’s exactly what happened on Initial Public Offerings, IPOs. That the City of London officials began coming to the United States, to the trade meetings, and saying do your IPOs in the City of London instead of Wall Street because we will look the other way while you do this.

And so I’d only make one minor thing about your point. Of course the Labour Party on finance issues is not a party that is remotely of the left. It is a party of what would be, in US terms, ‘the extreme right’. The Lib-Dems were every bit as bad, and the Conservatives, if anything, are worse. And so there has been no choice in the United Kingdom for over a decade, if you actually wanted to vote for someone who’s really going to regulate. So that’s what you have to change. And one of the British parties has to be changed into a party that represents the people… instead of representing the huge financial institutions.

Because you’ve just seen what happens to a nation that wins a competition in laxity; it loses its moral soul and it has repeated financial crises, because what it will attract is the worst pond scum throughout the world, and it will have regulatory leaders who will stand by while the pond scum destroy the nation.

In the first half of the same interview, Keiser asks Black to talk more specifically about Lanny Breuer, the head of the Criminal Division of the US Department of Justice, “caught boasting of his love for Deferred Prosecution Agreements”.

In fact, William Black had already written an extended article tackling the same subject back on September 17th. Entitled “Fiat Justitia? Breuer fires blanks on elite financial frauds”, Black’s piece entertainingly summed up Breuer’s recipe for disaster as follows:

Beurre blanc is the classic white butter sauce of France. Americans who hate the French claim that they became adept at saucing to cover up the rot in their meat in earlier times. A beurre blanc does not remove the rot. It masks the bad taste and the bad color of bad meat. Indeed, the sauce makes the dish even less healthy. If the rotten meat doesn’t get you, the sauce’s cholesterol will.

“Breuer blanc” is the classic white butter sauce served by the increasingly oxymoronic Justice Department to cover up the rot in elite American banksters. Lanny Breuer runs the Criminal Division during the continuing cover up of the greatest and most destructive epidemic of elite white-collar crime in our history. The ingredients of “Breuer blanc” consist of a generous portion of inaction and a large dollop of hypocrisy all emulsified with esters of excuse.

Black then goes on to explain how all of the last three US administrations, each having been bought off by huge political contributions, have been equally irresponsible in allowing “elite financial firms and their senior officers to commit fraud with near impunity”:

It was a travesty and a national tragedy that [Attorney General, Eric] Holder and Breuer (and their predecessors) have failed to do their duty to hold the banksters accountable. It is beyond comprehension that Breuer is bragging about his failure to prosecute elite corporate frauds. […]

The reality is that prosecutions of financial fraud fell dramatically under Bush and declined further under Obama. Breuer has not indicted a single elite Wall Street bankster whose frauds drove the crisis. I have been unable to find evidence that he has even conducted grand jury investigations of the elite banksters who drove the crisis. (Grand juries are secret, but they generally become public because the witnesses can disclose their existence.) Even if a few grand jury investigations of the Wall Street banksters have occurred, there cannot have been more than a handful of investigations worthy of the name. I know of none, and that includes Countrywide, WaMu, IndyMac, Lehman, Merrill Lynch, Goldman, the huge mortgage banks, and Citicorp.

And when it comes to the use of Deferred Prosecution Agreements [DFAs], Black begins by quoting what Breuer himself described as “the focus” of a speech he made on September 13th to an audience of New York attorneys, before then adding his own response:

“Tonight, I want to focus on one aspect of our white collar criminal enforcement in particular: the use of deferred prosecution agreements, or DPAs. Over the past three-and-a-half years, the Department of Justice has entered into dozens of DPAs, and non-prosecution agreements, or NPAs. I’ve heard people criticize them and I’ve heard people praise them. What I’m here to tell you, is that, along with the other tools we have, DPAs have had a truly transformative effect on particular companies and, more generally, on corporate culture across the globe.”

You will find the statement at 7:37 min into this youtube clip of Breuer’s speech:

Click here to read a very tidy official transcript of Lanny Breuer’s speech posted on the US Department of Justice website.

William Black’s response:

Breuer’s claim is preposterous. Here are key facts that show he is serving us tripe. First, he is correct that we have just run an experiment for over a decade – we no longer typically prosecute elite U.S. corporations that commit felonies. We have dramatically reduced financial fraud prosecutions and in the cases where the Criminal Division still troubles a felonious corporation it typically negotiates a DPA, or more pathetic still, a NPA. A DPA rarely leads to a prosecution of the corporation, so it too is really an agreement not to prosecute. DPAs and NPAs are primarily used for non-elite corporations, so when Breuer claims “dozens of DPAs” one should not assume that his Criminal Division is taking on vigorously fraudulent elite corporations, particularly elite U.S. corporations that commit felonies.

Far from proving that DPAs caused a “sea change in corporate compliance,” a December 2009 GAO study found that the Justice Department did not collect data on DPAs until 2009, had no performance measures for “corporate compliance,” and had no reliable information on purported improvements in corporate compliance.

William Black concludes the article as follows:

Breuer is a lawyer, not an economist. A lawyer should know better. We have known for millennia that the way to provide justice is to follow the maxim: Fiat Justitia; Ruat Caelum (let justice be done, though the heavens fall). The maxim may sound impractical, but long experience has demonstrated that the best way to prevent the heavens from falling is to always provide justice and ignore the claims that the elites should be given special favors lest the heavens fall. Breuer, Holder, and Obama are all lawyers who were taught that the temptation to create a special, favorable set of rules for the elites is not simply unjust but also the surest means of destroying a democracy, an economy, and a society. Politics, of course, teaches the opposite lesson and Breuer, Holder, and Obama became politicians a long time ago. Politics is raw, serving up crudités variées. Breuer’s speech coaching defense counsel on how to provide him with the excuse to avoid prosecuting elite corporate felons was crude and unworthy of any representative of the Department of Justice.

Click here to read William Black’s complete article.

And here’s what William Black said to Max Keiser [13:40 min]:

I was appalled. I, you know, used to help the prosecutions during the savings and loan [crisis] days. And I was a Justice Department lawyer, as was my wife. And Lanny Breuer set out a roadmap on how people could avoid getting prosecuted their elite white-collar criminal banks that caused the financial crisis. And the way he said to do it is hire yourself an economist and be really ‘too big to fail’ and claim that a lot of innocent workers are going to lose their jobs if you take any prosecution against my criminal bank. You know, in other words you hold the workers hostage. […]

Well, the deferred prosecution means non-prosecution, and everybody knows it means non-prosecution. And the one exception proved the rule. Arthur Andersen was offered a third Deferred Prosecution Agreement and refused it, and went to trial and lost… and so you know there’s no more Arthur Andersen. But the lesson the justice Department learned from all of that is: Oh my God, we can’t actually prosecute anybody large, and so they essentially don’t prosecute large organisations anymore. […]

This is all about removing the deterrents. This is all about allowing people to commit the crimes with absolute impunity. And this was more than a wink-wink, nod-nod… This is how you give me the excuse not to prosecute. And it was wonderful! Breuer said: Now I want to warn you, this approach won’t always work…

Not always – just all of the time…!

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the City of London: “Plutocracy, pure and simple”

Well it seems that Occupy London have managed to open up a real can of worms. Not only have they revealed just how closely tied the Church of England is to the financial establishment (which is something for the disestablishmentarians to get their teeth into – and it’s not often you get chance to say that!) but they have also brought mainstream attention to the murky twilight zone that is the City of London.

It’s a funny thing isn’t it, when somehow you can know all aspects surrounding the truth, yet never usefully piece them together into a complete picture; and so it is with the City of London.

Ever since I was a teenager, I’ve known that there are actually two cities in “London”, and that the bigger part of London should more properly be referred to as the City of Westminster. This is common knowledge and the kind of information that wins pub quizzes. For nearly as long again, I’ve also known that the City of London (or more commonly “The City”) is a pseudonym for “the banks”; simply because, or so I presumed, the Square Mile is the major business and financial district in the country. But for some reason, during all those years, I’ve never actually thought to put two and two together and look behind the labels. Well now, at last, the beans have been spilled, and thanks to some extent to George Monbiot.

In previous posts, I have been strongly critical of Monbiot with regards to his dismissive response to the catastrophe at Fukushima, and his significant, if presumably accidental part in the subsequent government/industry cover-up. But one should give credit where credit is due, and on this occasion Monbiot must certainly be applauded:

“It’s the dark heart of Britain, the place where democracy goes to die, immensely powerful, equally unaccountable. But I doubt that one in 10 British people has any idea of what the Corporation of the City of London is and how it works. This could be about to change. Alongside the Church of England, the Corporation is seeking to evict the protesters camped outside St Paul’s cathedral. The protesters, in turn, have demanded that it submit to national oversight and control.”1

So begins Monbiot’s article from Monday [Oct 31st] which goes on to outline how the City of London is run as a shadowy plutocracy where in over 80% of the electoral wards:

“…the votes are controlled by corporations, mostly banks and other financial companies. The bigger the business, the bigger the vote: a company with 10 workers gets two votes, the biggest employers, 79. It’s not the workers who decide how the votes are cast, but the bosses, who “appoint” the voters.”

A place where even to qualify to become an elected representative of ‘the Corporation’, from ‘common councilmen’ all the way to the post of Lord Mayor, requires that you are a ‘Freeman of the City’, which in turn means that you will need to belong to one of the City livery companies:

“medieval guilds such as the worshipful company of costermongers, cutpurses and safecrackers. [Whilst] to become a sheriff, you must be elected from among the aldermen by the Livery. How do you join a livery company? Don’t even ask.”

Might it involve rolling up a trouser leg and giving a dodgy handshake? Well, that was very definitely the comparison drawn by Labour MP John McDonnell in November 1999, during a parliamentary debate on the City of London (Ward Elections) Bill, in which he described ‘the backwoodsmen of the City corporation’ as ‘the lodge of lodges’, adding that ‘it is not the last bastion of privilege and freemasonry in this country, but it might be the biggest’.2

Meanwhile, and according to the Corporation’s own website 3 , the official role of the Grand Cyclops… sorry, I mean Lord Mayor, whose position is apparently ‘unpaid and apolitical’, is to:

open up new markets for city businesses, and to open doors at the highest levels for the accompanying business delegation.

Whilst:

In private meetings and speeches, the Lord Mayor expounds the values of liberalisation and expands on those factors which have underpinned London’s success, such as probity and transparency, open markets, corporate governance, Common Law, welcome for skilled people from around the world, support for innovation, proportionate taxation and regulation.

But as Monbiot explains, “this isn’t the half of it”…

The City of London is the only part of Britain over which parliament has no authority. In one respect at least the Corporation acts as the superior body: it imposes on the House of Commons a figure called the remembrancer: an official lobbyist who sits behind the Speaker’s chair and ensures that, whatever our elected representatives might think, the City’s rights and privileges are protected.

With suitably arcane title, the remembrancer (try saying it as Vincent Price would) is a gatekeeper; he who prevents the fancy of mere mortals from encroaching upon the auspices of that other world…

Monbiot again:

The City has exploited this remarkable position to establish itself as a kind of offshore state, a secrecy jurisdiction which controls the network of tax havens housed in the UK’s crown dependencies and overseas territories. This autonomous state within our borders is in a position to launder the ill-gotten cash of oligarchs, kleptocrats, gangsters and drug barons.

Monbiot also proposes a cure for such corruption, saying:

If you’ve ever dithered over the question of whether the UK needs a written constitution, dither no longer. Imagine the clauses required to preserve the status of the Corporation. “The City of London will remain outside the authority of parliament. Domestic and foreign banks will be permitted to vote as if they were human beings, and their votes will outnumber those cast by real people. Its elected officials will be chosen from people deemed acceptable by a group of medieval guilds …”

The Corporation’s privileges could not withstand such public scrutiny. This, perhaps, is one of the reasons why a written constitution in the United Kingdom remains a distant dream.

But here I would say that Monbiot is mistaken in two ways. Firstly, in Britain we already have our written constitutional laws in the form of multiple documents which include the Magna Carta and our lesser known Bill of Rights (from 1689); and secondly, even if we might produce a more condensed, up-to-date and familiar constitution – and right now, I dread to think who might be put in charge of such a project – this newly established constitution could still be overridden.

Take America, for example, which has the most famous “written constitution” of all, and consider the case of the founding of the Federal Reserve System. The Federal Reserve, for those who don’t know already, is the privately owned and controlled central bank of America. It was set up on the basis of plans agreed at a secret meeting of – would you guess? – bankers, that took place on Jekyll Island – you can’t make it up – exactly one century ago (Nov 1910), and was then smuggled into law as the Federal Reserve Act, just a couple of days before Christmas in 1913. This private takeover happened in spite of Article 1, Section 8, Clause 5, of the US constitution, which explicitly states that it is Congress that has the power “to coin money, regulate the value thereof, and of foreign coin”, yet in spite of its conspicuously unconstitutional origins, the Federal Reserve has remained in charge of US monetary policy ever since.

However, what we most certainly do need, and getting back to our own private banking takeover, is for continuing exposure of, and growing pressure on, the self-serving banker-occupied enclave that is the City of London. So well done to Monbiot for helping to set the ball rolling, and perhaps now he’s got a taste for the more exotic, he might also try to lift the veil on a few more ‘private’ clubs and organisations – Bilderberg would be top of my own list, although there are plenty of other shadowy, anti-democratic agencies to choose from.

I also hope that plenty of Londoners and others will take up Monbiot’s call for more directed action:

It happens that the Lord Mayor’s Show, in which the Corporation flaunts its ancient wealth and power, takes place on 12 November. If ever there were a pageant that cries out for peaceful protest and dissent, here it is. Expect fireworks – and not just those laid on by the Lord Mayor.

1 From an article entitled “The medieval, unaccountable Corporation of London is ripe for protest: Working beyond the authority of parliament, the Corporation of London undermines all attempts to curb the excesses of finance”, written by George Monbiot, published in the Guardian on October 31, 2011. http://m.guardian.co.uk/commentisfree/2011/oct/31/corporation-london-city-medieval?cat=commentisfree&type=article

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the erosion of our civil rights can’t come fast enough

The government’s latest plans ‘to toughen sentencing’ are about to be voted on by MPs tomorrow. Aside from savaging the legal aid system, the proposed legislation will also mean the criminalisation of trespass and squatting:

Kenneth Clarke has moved to toughen up his controversial sentencing bill by criminalising squatting and strengthening the law of self-defence for those who confront intruders in their own homes.

Which will sound reasonable enough to many perhaps, but are Clarke’s amendments actually for the protection of home-owners, or might there be an ulterior motive…?

The decision to ban squatting in residential buildings has been taken despite warnings that making trespass a criminal offence could also affect sit-ins and occupations and lead to an increase in the most vulnerable homeless people sleeping rough.1

Then yesterday, less than a week since Clarke’s announcement, and rather in the spirit of Clarke’s new proposals, Home Secretary Theresa May came out on Sky News to say that she hopes the authorities will be able to remove the Occupy London “squat” outside St Paul’s:

“It is important people are able to make peaceful protest but it becomes a bit different when it becomes a squat,” she said.

“I think we do need to look at the powers available. I would hope that the St Paul’s authorities, the Corporation of the City of London and the police will work together to ensure the protesters can be moved as soon as possible.”2

Yes, all these “squatters” are a terrible embarrassment, aren’t they?

Meanwhile, some opponents to the proposed anti-squatting legislation decided to take part in a “sleep-in” outside parliament. But — and here is a wonderful illustration of how our laws are actually applied — they were forcibly removed by police under “terrorism rules” that restrict protests to within a 0.6 mile (1km) radius.

Click here to watch a video of the protest available on the Guardian website.

As one protester puts it:

“I just feel sad that people’s rights are being slowly eroded little by little by little by little… and unless people do start wanting to change the system and insisting that the system changes, we’re just going to end up with no rights whatsoever.”

1 From an article entitled “Kenneth Clarke reveals plans to toughen sentencing bill”, written by Alan Travis, published in the Guardian on October 26, 2011. http://www.guardian.co.uk/politics/2011/oct/26/kenneth-clarke-plans-toughen-sentencing-bill?newsfeed=true

2 From an article entitled “St Paul’s Suspends Legal Action Over Protest” published by Sky News on November 1, 2011. http://news.sky.com/home/uk-news/article/16100585

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