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Chesapeake Bay.  March, 2013.  Photo by joanneleon.

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Chesapeake Bay.  March, 2013.  Photo by joanneleon.

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Chesapeake Bay.  March, 2013.  Photo by joanneleon.

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Chesapeake Bay.  March, 2013.  Photo by joanneleon.

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Chesapeake Bay.  March, 2013.  Photo by joanneleon.




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News and Opinion


They love watching but they hate being watched.  Oh, the humanity! And the NationalCity Security! Blowback, baybee.

Suddenly, NYPD doesn’t love surveillance anymore
Law enforcement agencies monitor our most basic acts. But try assigning them a watchdog and they resist with fury

The Big Brother theory of surveillance goes something like this: pervasive snooping and monitoring shouldn’t frighten innocent people, it should only make lawbreakers nervous because they are the only ones with something to hide. Those who subscribe to this theory additionally argue that the widespread awareness of such surveillance creates a permanent preemptive deterrent to such lawbreaking ever happening in the first place.
[...]
This contradiction is now taking center stage in New York City, as Mayor Michael Bloomberg and New York City police commissioner Raymond Kelly wage a scorched-earth campaign to prevent the public from being able to monitor its own police force. And in that crusade comes the frightening assumption about how the terms “safety” and “security” are now defined.

[...]

That is not an overstatement. Bloomberg and Kelly are the proud autocrats who brag of “hav(ing) my own army in the NYPD” and who used that army to spy on peaceful Occupy Wall Street protestors. They are the unapologetic masterminds of a surveillance program aimed at Muslim students. They are the unrepentant overseers of the city’s so-called stop-and-frisk policy, which seems to presume guilt, clearly violates civil liberties and disproportionately targets minorities. They are the champions of a Minority Report-esque system to integrate all the city’s cameras for ubiquitous real-time surveillance. They are the happy proponents of intensifying a drug war, again disproportionately against people of color. And they are now floating the idea of using drones to surveil the Big Apple.
[...]
This is where an Orwellian definition of “safety” comes in, for that’s at the heart of the Bloomberg/Kelly argument about oversight. Bloomberg insists that following other cities that have successfully created independent monitors “would be disastrous for public safety” in New York City. Likewise, the New York Daily News reports that “Kelly blasted the plan as a threat to public safety,” alleging that “another layer of so-called supervision or monitoring can ultimately make this city less safe.”

I have taken a liking to this British former regulator, Rowan Bosworth-Davies.  He doesn't mince words and he knows what he is talking about.  He is a thorn in the side of the British regulators.  Perhaps not that big a thorn, but a thorn nonetheless.  He is a former head of investigations at regulator FIMBRA (Financial Intermediaries, Managers and Brokers Regulatory Association) and a former Scotland Yard Fraud Squad detective.  He has posted at nakedcapitalism and has written a book.   On Twitter, this is how he describes himself: "Left field thinker, City banker scourge, British roots gigger, poet, songwriter, teacher, writer, wine-lover."  I should note that I have seen at least one social issue mentioned in his posts that I really disagree with, so my "liking" of him is limited to his views on criminal banks at the moment.  I guess we shouldn't really need to make disclaimers like that, but on this blog, there are some people will discredit a person on everything if they disagree with their positions on one issue.  I don't subscribe to that and more than ever, I'm all for coalitions around specific issues, regardless of disagreement on other issues.  To do anything else is to ensure powerlessness and failure.
Regulating the criminal banks in the future and why Standard Chartered Bank deserve a really good kicking!

How can I say this so clearly, well one of his senior staff told me so in an interview in 2000. He said to me;

“…There is an anxiety about the new criminal functions which we are being tasked to accept…various elements such as insider dealing, market manipulation, etc, all tend to colour our internal philosophy towards the question of conducting prosecutions. You really should understand, because of the difficulties associated with obtaining convictions in the criminal courts, there is no unswerving acceptance of the need for wholesale prosecution powers…”

This answer was given in such an open way, in contrast to so many other answers which he gave, that he was invited to state why he was so sure that this was the case. His answer was studiously revealing, and must be considered to contain a huge degree of truth. He said;

“…Because, frankly, Howard Davies has no intention of ending up with the sort of reputation which so bedevilled the SFO in its early days. He refuses to be tarred with the same brush as Barbara Mills or George Staple…”

I have been making these observations for many years now, writing and blogging, and hoping that the scandalous inability of the FSA to do its job properly, would be recognised. All I have done is brought down a regime of opprobrium on my own head in so doing.

I have been privately described as a 'brand liability', on the basis that anyone who employed me would be blackballed by the City Establishment. My name was taken off a list of speakers at a major public banking compliance conference because as the Conference owner said, '...none of the clients we want to pay to come to this event will come if they know he is speaking...' I have been shouted down at a regulatory workshop and prevented from speaking openly by the delegates present, and my evidence to the Parliamentary Commission on Banking Standards was conveniently 'lost' and not submitted for consideration to the Commission, until the very last minute, and only after I had raised the issue with the Chairman, and when it was too late for me to give evidence. A pre-arranged meeting that had been booked by a Bank of England Mandarin for me to meet him and discuss anti money laundering concerns, was mysteriously cancelled at the very last minute, the explanation being that it was considered to be inappropriate to be meeting me at that time, but there is no sign it will be reinstated.

I have no complaint, I merely report these facts for your information. I really don't think that anyone who adopts the position I have taken about banks, banksters and organised crime in the banking sector, can expect to be liked by those whom he targets, nor do I expect them to treat me any differently. They have exhibited all the traits and culture expressions of criminogenic actors for so long, it would be naive to expect them, to behave any differently, and I may be many things, but naive ain't one of them!

More from Rowan, from his article that appeared at nakedcapitalism in October, 2012.
Why It is Essential That Criminal Bankers are Prosecuted

Overall the statistics bear out the theory that financial practitioners believe they have little to fear in the actions of regulators, because whatever the outcome, the penalties do not lead to social or commercial exclusion from the financial sector. Fines have no impact on the individuals in the banks, instead, their impact is only felt by the shareholders.

However, what clearly works beyond any other measure is a conviction for what could be termed ‘an ordinary criminal offence’. It immediately places the defendant in the ranks of ordinary mortals, and its commercial exclusionary impact has been amply demonstrated. Being convicted of a crime is the route to the door marked ‘exit’, and it means that the convicted person can never come back into the City because no-one will be willing to work with him or employ him in future.

It must be hoped that we will not have to listen to any more special pleading on the part of the regulators that there are other, better methods of regulating the financial sector, methods which have a greater deterrent effect, because there are none! In addition, criminal convictions lead to asset seizures, and financial recovery proceedings, enabling ill-gotten gains to be recovered. The proceeds of the crimes become launderable and any other person who has facilitated in their distribution or dissemination can be prosecuted for money laundering.

For these reasons, we must insist that government implement an urgent review of the powers of the regulators to bring criminal prosecutions, and their relationship with the Serious Fraud Office and the Crown Prosecution Service to be upgraded and given far more flexibility, in the hope that we shall see many more errant bankers being forced to grip the rails at the Old Bailey.

I strongly believes that a few selected prosecutions and convictions would send such a shock-wave through the ranks of the hitherto spoiled and arrogant financial practitioners so that they will quickly lose the mistaken perception that they are a ‘protected species’.

Moral hazard with a twist?
Fiduciary Duty to Cheat? Stock Market Super-Star Jim Chanos Reveals the Perverse New Mindset of Financial Fraudsters
American business has always had cheaters and crooks, but today they are escaping prosecution and are incentivized to cheat more.

Hustlers. Cheaters. Crooks. American business has always had them, and sometimes they’ve been punished. But today, those who cheat and put the rest of us at risk are often getting off scot-free. The recent admission of Attorney General Eric Holder that systemically dangerous megabanks may escape prosecution because of their size has opened a new chapter in fraud history. If you know your company won’t be prosecuted, a perverse logic says that you should cheat and make as much money for shareholders as you can.

Moral Hazard

In economic theory, a moral hazard is a situation where a party will have a tendency to take risks because the costs that could incur will not be felt by the party taking the risk. In other words, it is a tendency to be more willing to take a risk, knowing that the potential costs or burdens of taking such risk will be borne, in whole or in part, by others. A moral hazard may occur where the actions of one party may change to the detriment of another after a financial transaction has taken place.
[...]
Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to hold some responsibility for the consequences of those actions.

Economists explain moral hazard as a special case of information asymmetry, a situation in which one party in a transaction has more information than another. In particular, moral hazard may occur if a party that is insulated from risk has more information about its actions and intentions than the party paying for the negative consequences of the risk. More broadly, moral hazard occurs when the party with more information about its actions or intentions has a tendency or incentive to behave inappropriately from the perspective of the party with less information.

Moral hazard also arises in a principal–agent problem, where one party, called an agent, acts on behalf of another party, called the principal. The agent usually has more information about his or her actions or intentions than the principal does, because the principal usually cannot completely monitor the agent. The agent may have an incentive to act inappropriately (from the viewpoint of the principal) if the interests of the agent and the principal are not aligned.

Another piece of specialized work, really important work, by David Dayen.  This is the report to which he refers: "GAO Report on the Independent Foreclosure Review".
David Dayen: GAO Report on Independent Foreclosure Reviews Exposes OCC, Fed’s Plan to Deliberately Minimize Evidence of Borrower Harm

That indeed is in the report, though I wouldn’t call it a major feature. And there are only a few big bombshells or pieces of corroboratory evidence in the report. Furthermore, its narrow scope – GAO only looked at the regulators’ design and ovesight of the foreclosure reviews, rather than what the independent reviewers did, and in fact they used the bank consultant reviewers as primary sources – tends to give a very circumscribed picture of the reviews. You could even say that this report will help get the bank consultants off the hook by putting the blame on OCC and the Fed.

But the regulators were definitely part of the story here, and once you get through the government audit-ese, you can begin to see the picture of how they conspired to ensure the reviews would offer little to no value, and indeed attempt to exonerate the banks. The ensuing calamity only shows how the scheme worked too well, burying any evidence of borrower harm among an avalanche of deliberately cracked design.

Remember why these reviews came together in the first place. State Attorneys General and federal regulators were moving forward with a joint process in the wake of the robo-signing scandal, and feeling lots of grassroots pressure to bring cases against the banks. OCC’s move was a classic divide-and-conquer tactic. They split off with their consent orders, even though around that time, then-director John Walsh said before Congress that he believed there were no illegal foreclosures as a result of the servicing errors. So the thumbs were on the scale even then. The reviews were a political maneuver to reduce the leverage in the larger investigation, and protect the mega-banks, who all have OCC as their primary regulator, from these widespread claims of borrower harm.

Given that, we should expect that little or no thought went into designing an accurate method for determining harm. GAO verifies this in two ways. First, they confirm that nobody actually dealing with borrowers on the ground was consulted about how to best figure out the major categories for servicer errors.
[...]
Instead, they created what I’d call the “illusion of comprehensiveness.” In ensuring that no stone was left unturned, they devised a process laden with unturned stones. They set the consultants down a path that created a confusing, complex, kludgy system requiring up to 50 hours per loan file to review, which is simply ridiculous and unnecessary.

QE (Quantitative Easing) forever would be the equivalent of a perpetual Cyrpus skimming money off of savings accounts, and a perpetual bailout for the criminal banks.  There are good aspects to QE too, but it looks like we are now trapped in it.
QE Forever?
Ambrose Evans-Pritchard, in a provocative column, argues that the monetary authorities are not going retreating from QE, and that might not be a bad thing. But in its current form, it probably is.

His key argument is that we might as well stop pretending that QE is about lowering borrowing costs. It can and should be about monetizing debts. He further argues, agreeing with a recent speech by Adair Turner, former head of the FSA, that the world needs more fiscal stimulus:

The policy is elastic, for Lord Turner went on to argue that central banks in the US, Japan and Europe should stand ready to finance current spending as well, if push comes to shove. At least the money would go straight into the veins of the economy, rather than leaking out into asset bubbles.

Today’s QE relies on pushing down borrowing costs. It is “creditism”. That is a very blunt tool in a deleveraging bust when nobody wants to borrow.

Lord Turner says the current policy has become dangerous, yielding ever less returns, with ever worsening side-effects. It would be better for central banks to put the money into railways, bridges, clean energy, smart grids, or whatever does most to regenerate the economy.

Now of course there is a wee problem, since in the US, Congress is in charge of spending, and Congress and our deficit-loathing President are not at all interested in increasing deficit spending, even if they grokked that the Fed could monetize rather than have the Treasury borrow.

Pritchard points out that extreme monetization isn’t necessarily a bad thing. The usual suspect is Weimar Germany, but that isn’t a great comparable to much of anything, since the monetary expansion also took place when the productive capacity of the country had been severely impaired via the provisions of the Treaty of Versailles, due to the loss of territory and reparations in the form of coal. [...]

Can you say WPA?  Can somebody get through to Obama?
A clip from a short government film about the the Works Progress Administration, one of the New Deal programs started during the Great Depression. This clip shows road, bridge, and airport construction, as well as water and sewer projects. Posted by David Burns for the Fasttrack American History Project.

Several of the thousands of posters created by WPA artists from the mid 30s 'til the mid 40s. These have become very collectible. "In theMood" by Glenn Miller Orchestra.

I picked up this link from Alexis Goldstein's Twitter feed.  It's a post on a blog called "Next New Deal: Blog of the Roosevelt Institute" and it's written by Mike Konczal, a fellow at the Roosevelt Institute.  In his Twitter profile, he says of himself: "Economics blogger. @RooseveltInst Fellow. White paper chaser."
How Congress and the Courts Are Closing in on Dodd-Frank

What are the serious threats to Dodd-Frank? Last month, Haley Sweetland Edwards wrote "He Who Makes the Rules" at the Washington Monthly, which is the best single piece on Dodd-Frank implementation I've seen. In it, she identifies "three main areas on this gauntlet where a rule can be sliced, diced, gouged, or otherwise weakened beyond recognition." The first is "the agency itself, where industry lobbyists enjoy outsized influence in meetings and comment letters, on rule makers’ access to vital information, and on the interpretation of the law itself." The second is the courts, "where industry groups can sue an agency and have a rule killed on a variety of grounds." And the third is Congress, "where an entire law can be retroactively gutted or poked through with loopholes."

How important have those three areas been? Looking at the first two and a half years of Dodd-Frank, the courts turned out to be the unexpected danger for financial reform. I have a piece in Bloomberg View today arguing this, as well as the fact that the courts are structurally biased against reform in some very crucial ways.

That's not to say the lobbying battle is going well. But when the bill passed, people understood that rulewriting would be a difficult battle, and some groups like Americans for Financial Reform and Better Markets could at least help balance the lobbying efforts of financial industry groups. What was less understood was that the D.C. Circuit Court would have so many vacancies, and thus tilted to the far right and a radical agenda. I hope you check out the piece.

This is the Bloomberg piece that he refers to (also written by him).
Bankers’ Court Wins Could Come Back to Haunt Them

First, an asymmetry exists in the types of claims that courts will accept. As David Arkush, an attorney at Washington- based law firm Gupta Beck PLLC, put it: “Businesses nearly always have standing to challenge rules that affect them. But if you’re someone who benefits from a rule and thinks it should be stronger, it’s much harder to get into court.” That’s a much less reform-friendly balance than the rule-making process, which requires regulators to read and weigh comments from all sides equally.
[...]
Second, litigation is a blunt and unpredictable weapon [...] It’s very hard for regulators to anticipate exactly what parts of their rules lawyers will challenge, and how the courts will react.
[...]
Third, the threat of litigation has a chilling effect that individual lobbying successes do not. It puts pressure on regulators to take more time writing the rules, to make them longer and more complicated, and to tilt them in favor of industry so that it won’t sue.
[...]
How can balance be restored? For one, President Barack Obama should put more focus on appointing judges to vacant positions. This would help correct an ideological tilt to the right that has made the courts particularly receptive to Dodd- Frank challenges. Obama didn’t nominate someone for the several vacancies on the District of Columbia Circuit Court until September 2010. [...]

So, one means to that end would be rewriting the filibuster rule, which has allowed senators to block Obama’s appointments. It is paradoxical that Senator Harry Reid, who worked so hard to pass financial reform, could see much of it undone by his lack of action in fixing the filibuster.

Ideally, the financial industry and the judiciary should recognize that killing Dodd-Frank in court isn’t in their best interests in the long term. By politicizing the courts and subverting the will of Congress, they are undermining the rule of law. By striking down rules wholesale, they are subverting the process of compromise -- an approach that could lead to even more draconian regulations on Wall Street.
[Emphasis added]

And here's good old Cass Sunstein, covering another angle defending the castle for the banks and the 1%.   Amazing to see this posted on Think Progress, a blog funded by the Center for American Progress, a think tank that is so closely tied with the Democratic party.  Sunstein is, last I heard, considered to be Obama's most likely candidate for the Supreme Court.
Sunstein’s ‘Simpler Government’ Is Legally Suspect, Overly Secretive And Politically Unaccountable

In his new book, “Simpler: The Future of Government,” Harvard law professor Cass Sunstein writes about his nearly four years as President Barack Obama’s “regulatory czar.” As the Administrator of the Office of Information and Regulatory Affairs (known as “OIRA”) within the Office of Management and Budget, Sunstein oversaw the regulatory output of the many agencies of the executive branch. Rules on worker health, environmental protection, food safety, health care, consumer protection, and more all passed through Sunstein’s inbox.

Some never left. A group of Department of Energy efficiency standards, for example, have languished at OIRA since 2011, as has an Occupational Safety and Health Administration rule to finally reduce exposure to the silica dust that sickens workers every year.

In his revealing book, Sunstein tells us why: It is because he, Sunstein, had the authority to “say no to members of the president’s Cabinet”; to deposit “highly touted rules, beloved by regulators, onto the shit list“; to ensure that some rules “never saw the light of day”; to impose cost-benefit analysis “wherever the law allowed”; and to “transform cost-benefit analysis from an analytical tool into a “rule of decision,” meaning that “[a]gencies could not go forward” if their rules flunked OIRA’s cost-benefit test.

It's hard for me to shake this dissonance... when I was growing up, during the Vietnam war, we were told about the Chinese.  I was terrified of them.  They were torturers, and we would hear the stories about them and the North Vietnamese, and what they would do to our soldiers.   They were totalitarians and horrible communists. Their people lived like slaves with no way to leave the country or to seek a better life.  They had no justice and no hope.  In this situation, the criminal is widely hated, is in a region where it's difficult for China to get him, and yet they choose to capture him alive and decide not to blow him up with a Hellfire missile.  I'll excerpt here but you really have to read the whole thing. Glenn sets it all up very well and then hits it out of the park. There is more than one aspect to this.
The soft, weak Chinese claim concern for international law and due process
Beijing considers but rejects drone-killing an elusive foreign killer hiding in the jungle, citing sovereignty issues and the need for a trial

What kind of weak, soft, overly legalistic government worries about trivial concerns like international law and "sovereignty issues" when it comes to drone-killing heinous murderers for whom capture is difficult? Why not just shoot Hellfire missiles wherever you think he might be hiding in weaker countries and kill him and anyone who happens to be near him? Or if you are able to find him, at least just riddle his skull with bullets, dump his corpse into the ocean, and then chant nationalistic slogans in the street and at your political conventions. Who would ever want to give a trial to such a heinous and savage foreign killer of your citizens, particularly if it means risking the lives of your soldiers to apprehend him?

What China did instead was conduct what the NYT this morning calls a "methodical and unyielding" law enforcement investigation over the course of six months. Using informants and following up on leads, they learned of Naw Kham's plans to escape to Laos. In April of last year, the Laotian police, acting in concert with the Chinese, apprehended him as he attempted to flee. He was quickly flown back to China and put on trial, which was nationally televised. In September, he pled guilty to the killings and was sentenced to death; after he withdrew his plea, his final appeal was rejected in December; and he was executed by lethal injection last month.
[...]
Indeed, in reporting on this episode, the New York Times twice tried to depict it as proof of the growing Chinese menace. In February, it said that the mere possibility that China would use a drone strike "highlights China's increasing advances in unmanned aerial warfare, a technology dominated by the United States and used widely by the Obama administration for the targeted killing of terrorists" (by "terrorists", the Times means: people accused of being terrorists by the US government with no due process). Then this morning, the Times claims that China's apprehension of Naw Kham in cooperation with other governments shows, as the headline put it, that "Beijing Flaunts Cross-Border Clout in Search for Drug Lord" and that "the capture shows how China's law enforcement tentacles reach far beyond its borders into a region now drawn by investment and trade into China's orbit, and where the United States' influence is being challenged."





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