"Cleaning Up Our Act"...Too Late And Too Dirty!
2014 is surely looking like a watershed type of year. We have seen a few slaps on the wrist here and there since 2008 for fraud, rigging markets, trading against customers, bogus ratings, multiple re-hypothecations of the same asset many times over and on down the line ...but no one ever seems to go to jail. I take that back, China has reacted harshly by even executing a billionaire for fraud, so I will clarify by saying no one in the West has gone to jail with the exception of 3 hedge fund managers. I say "watershed" year because even though no one seems to be doing jail time, some light is at least being shed on how crooked our markets are.
We've had the LIBOR and gold market revelations where firms paid fines (far smaller than their gains, so crime does in fact pay even after disgorging well over $30 billion in fines!) but no jail time. The important thing is that market participants are getting to see on a nearly monthly basis, all of the major firms say "we don't deny or admit doing anything but we agree to your multi billion dollar fine". People are not stupid, well, they are, but not this stupid. There has been much smoke but so far, no "fire" so to speak as the regulators don't seem to require ANY admission of guilt.
I will give you my opinion on "why" the admission of guilt is never required. It's really quite simple, were a firm to actually admit guilt for any sort of fraudulent activity, they could be barred from doing business in certain jurisdictions and exchanges. In some cases they MUST be barred from doing business under current rules and laws ...but this is only a side show to the reality.
The "reality" is that if a firm admitted guilt ...of anything, can you imagine the private slam dunk lawsuits that would arise? These lawsuits could total more than ALL of the equity these firms have combined! But wait, this is still not the real reason. The real reason that these firms are not held to task is because of the word "discovery". Do you understand? If there were private lawsuits that actually went to trial and were not settled ahead of time with "gag orders" included, the process of discovery would go forward and who knows what would be uncovered! "Who knows what?" such as what other firms were involved and yes ...which central banks or sovereign treasuries?!!! Spam me if you like and tell me that "governments" would never participate in "frauds", my answer will be as simple as suggesting you look at the fiat you have in your pocket. Would you like other examples?
So, this is why no one seems to go to jail and no firm ever "admits" guilt ...because the chain will ultimately lead up the totem pole and end at the central banks themselves and no one likes a "squealer". We got a glimpse of this yesterday as Bloomberg reported that Martin Mallett, the head trader of FX for none other than The Bank of England was fired. Please read this article closely, or maybe several times. Do you see anything strange? Maybe the author was smoking a left hander when it was written or maybe it is totally accurate but it doesn't make sense to me. It seems that Mr. Mallett was fired 1 day prior to UBS being fined for FX fraud. The article claims Mr. Mallett had "concerns" of collusion in the FX market going back to 2012 but did not relay his concerns to his superiors. The story went on to note that Mallett had regular meetings with various FX traders every two months and then quotes Mark Carney (Governor at BOE) as saying "What Lord Grabiner found was that our chief dealer was aware of circumstances in the market that could facilitate or lead to improper behavior by market participants.” But wait, the article finishes with, "Mallett “was not acting in bad faith,” according to the Grabiner report. He wasn’t “involved in any unlawful or improper behavior, nor aware of specific instances of such behavior,”.
So why then was he fired? Was he fired because he did not relay his "concerns" of FX collusion or did he get fired because he did try to go whistleblower with it? This will be interesting to follow (if there is any follow up) because surely there has to be some sort of concrete reason for his termination. I would add, if it were serious enough for termination and related to his job rather than bad conduct or the like, shouldn't he have been arrested? I get it, you can't really "fine" a public servant so to speak and termination is the equivalent. Again, this is interesting, not only because of "who and where", but because of "when" this is occurring.
The "when" is interesting not just because it was 1 day before this FX crackdown, negotiation, and fines being coordinated by UK, U.S. and Swiss authorities ... it was done during and before the G-20 meeting and final communique. Do you see where I'm going with this? Are "we" trying to show the world we are "cleaning up our act"? In my opinion, this may have something to do with it for appearances but I also don't believe there is a chance in hell it will work.
As I wrote yesterday regarding a "G-20 massacre", it is my opinion the world (led by China) may be sufficiently positioned to dictate all of the rules going forward. The Chinese are not stupid people and know fully that our markets are a rigged sham, ALL markets! Why have the Chinese not said anything prior to now? Well, they have, several times and done it politely as far back as 2010 regarding our fiscal and monetary decadence. The answer to "why" is quite simple in my opinion, it is because "we" the West, still had deliverable gold. Did they think or know the prices of gold and silver have been rigged? Of course, they would put in big orders to buy and then watch as the price went down. They have done the math, they know how much gold we "had" and they know how much is produced ...and subtracted what they have imported to know probably within 100 tons of where exactly the bottom of the barrel is!
Let me finish with pure opinion and what I think the global mindset is. The Chinese have allowed the sham to run and I must think that they feel a little bit embarrassed for the people of the West. They have held the APEC and BRICS summits prior to this weekend's G-20 meeting. President Obama showed up to meet President XI while chewing gum and then refused to ride in Chinese provided limousines. Do you see how bad this looks and really IS? Chewing gum? Did he believe his life was in danger riding in Chinese transportation? Any more danger than the 40 or so "fence jumpings" at the White House? Did he really believe the Chinese would ever let anything bad happen to a foreign head of state ...especially the U.S.? These meetings are all about "pomp and circumstance", even university professors have expressed their outraged opinions on China's censored and monitored internet! None of these blogs would ever have been allowed without "official" permission, at the least, these professors would be out of a job without it.
As for the rest of the world, they are lining up behind China and gathering collectively to move out from under U.S. hegemony. Some Americans see this, many do not. The world is not happy with us and even many of our allies are shuffling away from us. If the intent on any of the fines (without jail time or "executions" of course) over the last 2-3 years was in any way to placate or "appear" as though we are cleaning up our act, forget it. Just like the crazy aunt in the basement that everyone knows about but won't admit to or speak of, Western markets are too dirty and have been so for too long. Any attempt at "cleansing" at this point will require a total gutting of the house. This will happen not by the good intentions of our leaders, rather by Mother Nature burning the whole thing down to start over again from scratch.
Bill Holter writes and is partnered with Jim Sinclair at the newly formed Holter/Sinclair collaboration. Prior, he wrote for Miles Franklin from 2012-15. Bill worked as a retail stockbroker for 23 years, including 12 as a branch manager at A.G. Edwards. He left Wall Street in late 2006 to avoid potential liabilities related to management of paper assets. In retirement he and his family moved to Costa Rica where he lived until 2011 when he moved back to the United States. Bill was a well-known contributor to the Gold Anti-Trust Action Committee (GATA) commentaries from 2007-present.