MORE RELEVANT THAN EVER GIVEN BASEL-II COMPLIANCE REQUIREMENTS
Thursday 18 September 2008 02:00
U.S. FINANCIAL MARKET REVAMP LAST MARCH IS A FALSE PROSPECTUS BY TREASURY
ALTERNATIVE PLAN PRESENTED HEREWITH IS SIMPLER, TIMELY, CHEAPER AND EFFECTIVE
PRESIDENT’S WORKING GROUP ‘REFORM PLAN’ EXPOSED AS A SELF-SERVING RUSE
BETTER PLAN BY MICHAEL C. COTTRELL, B.A., M.S. CAN BE UP AND RUNNING IN MONTHS
CONVOLUTED ‘PAULSON’ FABRICATION WOULD COST IMMENSE $ SUMS TO IMPLEMENT
TREASURY’S PROPOSALS REQUIRE SEVEN NEW AGENCIES, MR COTTRELL’S JUST ONE
THREE-STAGE ‘PAULSON’ PROPOSALS CALCULATED TO UNDERMINE MARKET PSYCHOLOGY
ALTERNATIVE PLAN SUPPLEMENTED BY A COMPREHENSIVE SECURITIES MARKET GLOSSARY
• Economic Intelligence Review contains Michael C. Cottrell’s Rules-Based Reform Plan and the extensive Glossary of Financial Market Definitions. Publication date: Friday 15th August 2008.
• See our report dated 12th August 2008 inter alia for historical intelligence on GEORGIA. See reports dated 14th, 16th, 18th and 19th August for Georgia and Settlements Crisis Updates.
• INTERNATIONAL CURRENCY REVIEW, Volume 33, #s 3 & 4, all 972 pages of it, is making waves all over the world. It contains a blow-by-blow deconstruction of this crisis via the Wantagate plus our further analyses: and everything published therein is now well and truly ON THE GLOBAL PUBLIC RECORD. Accordingly the whole world owns a detailed, damning account of the serial criminality of the Bush-Cheney-Clinton ‘Box Gang’ et al., which CANNOT BE EXPUNGED FROM THE RECORD.
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By Christopher Story FRSA, Editor and Publisher, International Currency Review, World Reports Limited, London and New York. For earlier reports, press the ARCHIVE. Order your intelligence subscriptions and our ‘politically incorrect’ intelligence books online from this website.
SIMPLE RULES-BASED MARKET STABILISATION PLAN BY MICHAEL C. COTTRELL, B.A., M.S.
In the first quarter of 2008, Michael C. Cottrell, B.A., M.S., President of Pennsylvania Investments , Inc., contacted the Editor of this service to brief him in detail on the dubious stratagems behind the disparate proposals that were finally unveiled at the end of last March by the President’s Working Group on Financial Markets, a.k.a. the ‘Paulson proposals’.
As a result of several conversations, Mr Cottrell, one of the foremost securities markets experts in the United States, prepared a critique of the US Treasury’s extraordinary ‘Plan’, which he was easily able to demonstrate is highly destablising, not least since its plainly confused recommendations undermine financial market confidence while demonstrably serving the interests of the criminalist kleptocracy at the expense of the genuine investment community. This analysis is presented here.
In short, the Working Group’s ‘blueprint’ is shown herewith to be a false prospectus.
Having discredited the Working Group’s proposals, which would call for the creation of no less than SEVEN expensive and mischievously overlapping new US regulatory bureaucracies and for the abolition of the essential rules-based securities market environment, which would be phased out over an imprecise but prolonged timeframe, Michael Cottrell presents his own effective and simple solution to the chaos brought about by years of officially condoned fraudulent finance.
This will require just ONE new US regulator, will call for the revalidation by Congress of the Glass-Steagall Act and for the decisive re-establishment of the essential rules-based system which the Securities and Exchange Commission (SEC) has neglected to enforce in recent years, and can be implemented in full within the space of just a few months, at most. Additionally, Mr Cottrell’s simple Plan will be infinitely cheaper to implement than the top-heavy Working Group proposals.
The Editor has incorporated Mr Cottrell’s proposal into this analysis; and the extensive Glossary, built around Michael C. Cottrell’s original framework, has been expanded so that all concerned can readily understand what has to be done. Michael C. Cottrell, B.A., M.S., can be contacted direct on: 814-455 9218 (voicemail), and at: firstname.lastname@example.org.
Mr Cottrell’s reform framework has been elaborated by the Editor to incorporate ideas for which he alone is responsible but which Mr Cottrell has graciously approved.
• Important Note: We can only report US law as it stands. We cannot make exceptions and neither can we speculate as to the prospective actions of authorities given, for instance, the admission by UBS that it broke the law, and the consequences of that admission for some US investors who may consider that they are eligible for Settlement payouts. Nor can we enter into ANY correspondence concerning that matter. The only issues that we will discuss arising from this post are Mr Cottrell’s practical and straightforward recommendations: and these issues should be raised with him direct.
This paper describes, exposes and then systematically demolishes the credibility and relevance of the so-called ‘Paulson’ proposals, a.k.a. the mish-mash of convoluted notions brought forth by the President’s Working Group on Financial Markets at the end of March 2008.
In passing, it questions the basis upon which expectations of repayment by some US participants in ‘humanitarian’, Omega and other often unregistered, and therefore usually (in the United States) illegal, Ponzi schemes are predicated, shows why these schemes are illegal by comparing them to what the US securities and other relevant US legislation requires, and presents inexpensive and constructive proposals to replace ‘Paulson’s’ dog’s dinner – which, incidentally, would call for the establishment of no less than SEVEN expensive new US bureaucratic agencies, whereas the Plan, devised by the securities expert Michael C. Cottrell, M.S., which is advanced here, would require just ONE new agency instead. Further, Mr Cottrell’s scheme could be up and running within a few months, whereas the ‘Paulson’ dog’s dinner is phased over an indeterminate timeframe.
OFFICIAL PROPOSALS ARE MISCHIEVOUS
On investigating this matter, we were quite surprised at the ease with which the Working Group’s spurious obfuscation operation could be shown to be a glaringly false prospectus that has been jumbled together in order to disguise what can only be described as its underlying mischievous intent. For these proposals dishonestly seek to convey an impression of regulatory reform (in response to the chaos in the financial markets which has been brought about exclusively by the serial criminality of holders of high office) – whereas their actual purpose is to mask the objective of precluding meaningful reform in favour of cosmetic adjustments consistent with an even more permissive and crime-friendly environment than exists today.
Indeed a pattern of nefarious US official behaviour has become clear since the deregulation of the Savings and Loan Associations in 1982. It can be summarised as follows. Far from entertaining any clear intention of curbing excesses and seeking to contain financial sector crises and instability brought about by organised financial fraud condoned at the highest levels of American power, the participating US authorities typically allow the prevailing crisis of confidence and its real economic consequences to escalate until, as happened at the end of the 1980s with the messy ‘responses’ developed by Congress to the ‘hollowing out’ (enronisation) of the thrifts, the problems become so huge that radical departures are agreed upon ‘under duress’ which, in turn, provide the intended basis for a proliferation of fraudulent financial operations ‘by other means’.
FOLDING THE CRIMINALISTS’ CRISIS INTO A ‘UNIVERSAL SOLUTION’
This is exactly what these cynical ‘Paulson’ proposals are predicated to achieve. The underlying motive here is to ‘fold’ the contemporary financial and economic crisis into a ‘ universal solution’ which will, if this Treasury has its way, give the arch-planners of fraudulent finance practices, carte blanche to proliferate their scams and aberrations for many years to come.
Accordingly, the fraudulent prospectus disgorged by the President’s Working Group on Financial Markets needs to be consigned forthwith to the trash can. This report will help to achieve that.
As indicated, we present a simple, straightforward, constructive, inexpensive and quickly and easily implemented alternative Plan to replace it. Its author, Michael C. Cottrell, M.S., one of the United States’ foremost securities markets experts, argues that no further attention should be paid to the dishonest and discredited ‘Paulson’ proposals, which have in any case more or less run into the sand; and that the straightforward measures advocated below should be adopted, instead.
They would immediately inject the necessary discipline into the marketplace, precluding scope for securities scamming models to which the notorious American kleptocracy has become accustomed.
This paper is supplemented by an extensive Glossary of securities environment terms, for the benefit of the lay reader. The Editor has incorporated several appropriate new terms in the list.
SELF-SERVING PLAN TO ‘CLEAN UP’ MESS THE CRIMINALISTS THEMSELVES CREATED
Among the most distasteful characteristics of the world-class financial criminals exposed through our reports is their habit of advising the Rest of Us how the distasteful consequences of their own glaring criminality are to be overcome. The flip-side of the accomplished US financial criminalist is typically an unimpressive ‘angel of light’, who preaches the virtues of sound finance, in order to mask the fact of his endless reprobate financial misbehaviour.
Thus, having presided over and orchestrated the stealing of colossal sums of other people’s money, the US intelligence operative calling himself Henry M. Paulson Jr. [but see Memorandum below], as advertised, promulgated, in March 2008, a set of goofy and confused proposals for the ostensible ‘reorganisation’ of the way the US financial markets are regulated, which amounts to a pre-planned ‘new regulatory order’ – but the purpose of which, on investigation, turns out NOT to be improved financial sector discipline, but rather the cynical and surreptitious institutionalisation of market conditions that will facilitate replication of the abuses and fraudulent finance that have so far been exposed, but on a far broader scale, in the years to come.
A prerequisite for understanding what follows, and the prevailing financial days of reckoning and their origination generally, is to recognise the subversive reality of the ‘angels of light’ deception model. The financial sector traditionally clothes itself in a mantle of assumed righteousness, which is reinforced by generational layers of perception yielding a belief that financial institutions are, generally speaking, models of rectitude which cannot deviate from the strict codes of conduct that are presumed to surround them, and therefore from the Rule of Law.
BELATED, GRUDGING REALISATION THAT WHAT HAS BEEN REPORTED IS ACCURATE
Because this general lazy presumption is rarely, even today, called into question, it took, to our certain knowledge, certain British and American circles over two years to reach the staggered conclusion that what we have been reporting was accurate, both in general terms and more often than not, in terms of specifics as well.
By the same token, the underlying assumption that the exotic Treasury proposals developed by the President’s Working Group on Financial Markets, which will be demolished here, are of beneficial and enlightened intent, has no basis in reality, as will now be examined. On the contrary, as might have been expected, they represent ANOTHER pathetic scam, a deception, a diversion, a PLOY.
We will begin with a ‘straight’ summary of the ‘Paulson’ proposals, which will then be exposed as representing a false and deceitful prospectus.
THE FALSE PROSPECTUS AS ANNOUNCED
Following our exposures of financial fraud between June 2006 and the same month a year later, tensions rose to such a pitch behind the financial sector scenes that the US authorities felt the sudden need to be seen to be ‘doing something’ – an urge that resulted in the establishment of the President’s Working Group on Financial Markets.
But by ‘doing something’, the criminalists actually meant leveraging the financial crisis which has developed as a direct consequence of their criminality through the advocating of false ‘reforms’ under cover of which they intended to institutionalise a permissive US environment which would guarantee that their addiction to manufacturing liquidity out of thin air through untaxed high yield investment programs (out of bounds to ordinary mortals because outside the officially protected corruption zone, they are lethally risk Ponzi scams: see below), would be OK’d without recourse.
The phrase ‘Working Group’ is a designation used by Israeli intelligence to describe an operation inside the Israeli Government structures (viz., intelligence), with a focus on developing a modus operandi to achieve an instructed objective, according to Robert Littell [‘Vicious Circle’, Overlook Press, Peter Mayer Publishers, New York, 2006].
After ‘labouring’ for eight months, the Working Group brought forth a convoluted, fragmented and opaque ‘THREE-STAGE plan’ to ‘reform’ US regulation of the very financial institutions with which the now disgraced ruling kleptocracy has been collaborating to scam ordinary American citizens, mortgage ‘holders’, the US Government itself, and foreigners who fail to do their ‘due diligence’.
The overall effect of the regulatory fragmentation plan put forward in bad faith (as we demonstrate below) by the Working Group would be to place the control of all financial markets wholly under the power of the President of the United States – which, given the criminality of the present and recent incumbents, would be a recipe for the institutionalisation of fraudulent finance, the elimination of all remaining checks and balances, and consequently for a corrosive financial market environment leading to a financial meltdown in a few years’ time which would make the present crisis look like a pleasant afternoon by the seaside.
Before we go any further, we must summarise the Working Group’s proposals without commenting in any detail immediately on their implications:
STAGE ONE, AS PROMULGATED BY THE PRESIDENT’S WORKING GROUP:
• The President’s Working Group on Financial Markets would be expanded to add banking sector regulators not hitherto participating in its deliberations, in order to broaden the Working Group‘s supposed focus to incorporate the whole of the US financial sector, rather than just the financial markets as such (begging the question: what was the problem? Why the delay?).
• Lending by the Federal Reserve: Because non-bank financial institutions have, since December 2007 (thanks to the chaos brought about by fraudulent finance operations over which this ‘Paulson’ himself presided) had access to the US Federal Reserve, the Fed would be able to conduct on-site examinations of such borrowers and impose conditions on their operations.
• Establish a Mortgage Origination Commission to consist of six Board Members, taken mainly from Federal structures. The new entity would proceed to establish minimum licensing standards and testing criteria, and would gauge and grade the adequacy of each State’s mortgage control system. This would be accompanied by clarification of which Federal body is to enforce mortgage lending legislation (which, for some unexplained reason, the Working Group could not manage to do).
STAGE TWO, AS PROMULGATED BY THE PRESIDENT’S WORKING GROUP:
• Federal Oversight of State-Chartered Banks: It was reported that the US Treasury recommended a study to determine whether the Federal Reserve or the Federal Deposit Insurance Corporation (FDIC) should have oversight of State-chartered banks. (Great! So we need a ‘study’. Why didn’t the Group perform that study, then? Why the ‘need’ for further delay while the ‘study’ is carried out?).
• Thrift Charter to be eliminated: The following banking sector regulator was categorised as ‘past its sell-by date’: The Office of Thrift Supervision. This entity, which oversees US Savings and Loan Associations (so-called ‘Thrift Institutions’) should be closed down and folded into the Office of the Comptroller of the Currency, which has oversight of National Banks. (No reason given).
• A new (optional) Federal Insurance Charter: The US Treasury proposed the creation of a Federal regulator to cover the insurance sector, which is extremely corrupt in the United States. The first step would be to ask Congress to create an Office of Insurance Oversight within the US Treasury, to focus on international issues and to advise the Treasury on insurance sector affairs. This would be the first step towards the creation of step two, namely the creation of a new Federal Insurance Charter. (Notice that everything is ‘spaced out’, laid-back, confused and overlapping).
• Revised payments and settlement arrangements: Under the eccentric proposals brought forward by ‘Paulson’, it was suggested that the Federal Reserve Board should be given oversight and rule-making authority over the payment and settlement systems for the processing of payments and the transfer of securities between financial institutions and their clients. (Hence, de facto regulation of the securities markets would devolve into the hands of the untrustworthy Federal Reserve).
• Futures and Securities markets: The US Treasury used this report to call for the merger of the Commodity Futures Trading Commission (the CFTC) and the Securities and Exchange Commission (the SEC), neither of which has been doing its job properly, given the sheer scale of the bribery and corruption behind the scenes, plus reports that the SEC has itself been engaged in trading on own account (see below).
In particular, the Treasury proposed that the Securities and Exchange Commission, which operates (or should operate) on the basis of precise rules and regulations backed by rigorous enforcement, should ‘preserve’ the modus operandi of the US Commodity Futures Trading Commission, which is that business should instead be conducted in accordance with stated ‘principles’.
In other words, the Treasury wanted to scrap the rules-based system (required under the 1933 and 1934 Securities Acts) and to replace it by a vague ‘principles- based’ system’, which would mean that enforcement would be almost impossible – because a régime of relativism would prevail and key terms would remain undefined.
Securities professionals are taught and intensively trained to operate exclusively on the basis of the SEC’s ‘rules-based’ system, which precludes any deviation whatsoever from the established rules (provided the regulations are enforced, which has not been the case for years because of corruption within the Securities and Exchange Commission itself).
STAGE THREE, AS PROMULGATED BY THE PRESIDENT’S WORKING GROUP:
A new US regulatory structure would be imposed over the longer term, under which US financial institutions would be asked to choose between one of three Federal Charters:
• Federally Insured Depository Institution:
This would be applicable to all lenders with Federal deposit insurance.
• Federal Insurance Institution:
Applicable to all insurers offering retail ‘products’ which entail some degree of Federal guarantee.
• Federal Financial Services Provider:
This charter would cover all other categories of financial services firms.
Under this regime, the following SEVEN NEW FEDERAL AGENCIES, each with its own hyper-expensive self-serving bureaucracy would ‘regulate’ US financial institutions:
• The Market Stability Regulator: Under this vague proposal, the Federal Reserve was to ‘look out’ for threats to the stability of the United States’ diverse financial system, whether they originated with banks, insurance corporations, mortgage lenders, investment banks, hedge funds, or with any other type of financial institution.
The Federal Reserve could require corrective measures to be taken to address current risks or to curb future risk-taking, but these powers could only be exercised if overall financial stability was threatened. In other words, this entity would essentially achieve nothing at all, leaving the financial markets alone (until it was too late), thereby passively facilitating a progressive repetition of the near-catastrophe experienced since the mid-1980s, but on a far larger scale.
• Prudential Financial Regulatory Agency: This new entity would regulate US financial institutions buttressed by explicit Government guarantees associated with their operations, such as Federal deposit insurance. The new US agency would assume the rôles of the current Federal prudential regulators, including the Office of the US Comptroller of the Currency and the Treasury’s Office of Thrift Supervision. Yet another (subsidiary) regulator would focus on the hitherto unrestrained and unregulated off-off-budget Government-Sponsored Enterprises (GSEs) which, though established by the Federal Government, were placed (on creation) into the ‘private’ sector and have implicit Government backing, such as the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal Home Loan Bank System. See our report dated 26th December 2007 for insights into how Fannie Mae, for instance, has been used to perpetrate fraudulent financial transactions in the US mortgage sector [Archive].
• Conduct of Business Regulatory Agency: This new regulator would be charged with ‘consumer protection’ with respect to all categories of financial entities. The agency would watch disclosures and business practices, and would supervise the licensing of certain types of financial firm.
It would absorb many of the functions of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), and would undertake some responsibilities that are currently handled by the Fed, state insurance regulators, and the Federal Trade Commission.
• Federal Insurance Guarantee Corporation: This new agency would replace the Federal Deposit Insurance Corporation, charging premia to guarantee bank deposits and insurance payouts.
• Corporate Finance Regulator: This new entity would take over other functions of the Securities and Exchange Commission, such as the oversight of corporate disclosures, governance issues, accounting, and other matters.
In other words, SEVEN NEW BUREAUCRACIES would regulate everything and achieve nothing.
THE PURPOSE OF THE FALSE PROSPECTUS: OBFUSCATION
Confused? That’s precisely what is intended. As can be seen, this curious pot-pourri of convoluted arrangements matches the intentions of those who framed it (and who will not see it implemented, we feel sure). Those intentions can be summed up in the single word: OBFUSCATION.
For these proposals were developed during the immediate aftermath of the emergence of overt financial sector strains arising from the ongoing exposures of the open-ended financial fraud; and their purpose, from the outset, was not to enhance regulation and to make it ‘more efficient’, but rather to bring forward a novel framework under cover of ‘overdue reforms necessitated by the credit crunch and the financial crisis generally’, which could be exploited and leveraged to cover up, rather than to further expose, the serial financial criminality that blew up in the faces of the US kleptocracy as a consequence of the exposures of its endless criminality.
In other words, the President’s Working Group on Financial Markets appears to have been briefed in bad faith, its task being to develop a platform and framework of proposals which would serve the purpose of obfuscating financial criminality, while appearing to do the opposite. This was, in short, nothing less than a typical deception, intended to convey the dubious impression that ‘reform’ was (belatedly) being recommended, while in practice substituting the existing regulatory system which has not been properly enforced, with a vague, woolly régime framed so as to facilitate the very free-wheeling fraudulent finance and risk-taking that the proposals are supposed to deter.
Since, however, the proposals were brought forward by deception operatives whose speciality has all along been dialectical ying-yang behaviour, duplication and duplicity, the discovery that these proposals are a sham, comes as no surprise. Whether those who listened to ‘Paulson’ making this pitch on 2nd July 2008 at the Royal Institute of International Affairs (Chatham House) in London (the globalist UK think-tank which masquerades as a free-standing institution of the British nation state while constantly undermining it), understood this duplicity, seems improbable.
On that occasion, ‘Paulson’ presented a series of vague generalities for the consideration of the British ‘Great and the Good’ assembled to hear this pitch, such as that ‘the financial landscape has changed, and non-bank financial institutions play a significantly greater role’ than used to be the case. (When one of our special contacts attempted to make himself known to this ‘Paulson’ fellow, he vanished out of sight).
But the existing US regulatory régime has not ‘failed’ because it is no longer ‘fit for purpose’. It has ‘failed’ for three straightforward reasons:
(1) Some of the regulatory agencies, such as the Federal Reserve Board itself, the Securities and Exchange Commission, and the Commodity Futures Trading Commission, are/have been corrupt.
(2) The corrupt regulators have accordingly failed to regulate, let alone to enforce their regulations.
(3) The focus of the corrupt regulators is to prolong the obfuscation operation, to verbalise their dereliction of duty through spinning for the benefit of the likes of The Wall Street Journal, and to seek to draw a veil over such issues as the SEC’s ‘legitimisation’ of naked shorts for a restricted group of participants, whereas a regulator should be completely impartial. The overall objective is self-preservation, protection of their own personal interests, and staying out of jail themselves.
• In respect of ‘naked shorts’, has the SEC conveniently forgotten the old securities market adage:
‘He who sells what isn’t his’n, Must put it back or go to prison’?
TERMS DELIBERATELY LEFT UNDEFINED UNDER THE INTENDED ‘PRINCIPLES-BASED’ REGIME
In place of the existing (albeit unenforced) regulatory régime, ‘Paulson’ proposed a system not of rules-based regulation, which could be enforced if the regulatory agencies themselves were not corrupt, but of ‘principles’-based regulation, which, by definition, would entail that there would be no rules to be enforced, terms are not defined, and that breaches of ‘principles’ are liable to be irrelevant because it would always be a nuanced matter of relatavist judgment whether principles were being flouted, or not. In otherwise, such a régime would not amount to a regulatory régime at all, but rather to a crooks’ charter and paradise. ALL OVER AGAIN.
If the existing US regulatory agencies were doing their jobs properly, they would be adequate for the purpose – and certainly far more adequate than the deliberately complexified, overlapping and obfuscatory framework suggested by the President’s Working Group on Financial Markets.
But while the Working Group may be redundant and has discredited itself, the financial market issues that it was supposed to have addressed, remain in existence and as intractable as before.
THE EXISTING U.S. REGULATORY FRAMEWORK
The existing US regulatory framework, for the record, consists of the following agencies:
• Federal Reserve System: Supposedly regulates the US monetary system and oversees bank holding companies. Historically lacked real assets apart from its contract to print the currency of the United States, which ought to be a function of the US Treasury,
• Securities and Exchange Commission (SEC): Established by the Congress in 1934 to regulate the securities markets in accordance with stated rules and under the 1933 and 1934 Securities Acts, to maintain ‘fair’ markets and to protect investors. The SEC also, as a primary element of its oversight powers, reviews corporate financial statements, is supposed to enforce the securities regulations, and provides guidance for the framing of accounting rules.
• Federal Deposit Insurance Corporation (FDIC): This regulator insures deposits lodged by bank customers against the failure of banks. The FDIC was created in 1933 to build and maintain public confidence and to encourage stability in the financial system by fostering sound banking practices.
• Office of the Comptroller of the Currency: This traditional arm of the US Treasury Department was established in 1863 to supervise and regulate National Banks and the Federal branches of foreign banks. Its purpose is to promote the safety and soundness of the banking system and to conduct on-site examinations of banks across the nation.
• Commodity Futures Trading Commission (CFTC): Established as a US agency in 1974, this entity is supposed to ensure the open and efficient operation of the US futures markets, which started out trading agricultural futures, and now trade sophisticated synthetics (derivatives).
• Office of Thrift Supervision: This agency issues and enforces regulations governing the United States’ Savings and Loan sector (Thrift Institutions). It is responsible for ensuring the safety and soundness of deposits with Thrift Institutions.
SHORT HISTORY OF U.S. FINANCIAL TRANSPARENCY
(A) 1890 to the 1920s:
Leading American financiers of the late 19th century, such as John J. Astor, Cornelius Vanderbilt, John D Rockefeller and J. P. Morgan (1), provided capital to finance the establishment of very large corporations and combines, also known as the trusts, which came to wield enormous power across entire industrial sectors. As a consequence, by the year 1890, the control of 5,000 corporations was held by about 300 such trusts operating all over the country. By 1900, the largest dozen of these combines were capitalised at over $1.0 billion (2) .
Accordingly, investment bankers became corporate directors – with Morgan, for instance, having board representation on 78 investment bank companies.
Therefore, when these large corporations needed injections of capital, the bankers who were sitting on their Boards claimed to represent the bondholders (3).
Disclosure of financial information was entirely voluntary, even though disclosure of predator practices could only be revealed via the balance sheet (4). The Sherman AntiTrust Act of 1890 was enacted in order to define and make the monopolistic activities of such trust companies illegal (5).
In 1914, the Clayton Anti-Trust Act sought to increase competition across the business sector by restricting predatory corporate activity such as acquiring other competing corporations and the practice of allowing interlocking corporate directorships (6).
And the Federal Trade Commission Act, passed in the same year, established a regulatory authority, acting as the ‘watchdog of competition’, to protect the American consumer from ‘unfair methods of competition’ (7). In other words, raw, unregulated capitalism was by now seen as being prone to abuse and in need, therefore, of official constraint.
(B) 1920s to 1941:
During this period, the number of investment companies that were formed in the United States steadily increased from six in the year 1921, to 46 in 1925 (8).
While most of these investment companies were subject in some measure to the ‘Blue-Sky’ [see Glossary] requirements, the State statutes and regulations appear not to have treated investment companies much differently from the general run of corporations and business trusts (9).
As previously, disclosure of financial information remained voluntary, even though the disclosure of predatory practices could only be conveniently disclosed through the balance sheet (10).
Between 1927 and 1929, these investment companies raised approximately $2,300,000,000 from the sale of new securities. Their assets increased from $550,000,000 in 1927 to almost $2,600,000,000 in 1929 (11). Distribution of the shares in these fixed trusts reached peak levels during 1930 and 1931, when $600,000,000 of their shares were sold, inducing the passage of various US statutes and the promulgation of regulations which brought the expansion of these fixed trusts to an end (12).
In 1933, North Carolina adopted a regulation (which in due course was adopted as Section 11 of the Investment Company Act of 1940) which prohibited the charging of any sales load on the switching of trust shares (13). As a consequence of the lessons learned the 1920s and early 1930s, including bitter experiences suffered by investors with ‘bucket shops’, the original and copycat Ponzi and Pyramid-selling schemes, and other forms of fraudulent finance that flourished in this free-for-all environment, the Congress passed the stringent Securities Acts of 1933 and 1934, followed by the Maloney Act of 1935; and in the banking sector, the Banking Act of 1933 and the Glass-Steagall Act of 1933 which restricted US banks to banking operations and precluded their participation in the securities markets. The Securities Acts were updated by the Securities Acts Amendments of 1970.
THE EXPENSIVE FALSE PROSPECTUS ANALYSED:
U.S. TREASURY’S 2008 REGULATORY ‘REFORM’ PROPOSALS (14), (15)
Astonishingly, in view of the obvious fact that these proposals would be bound to have an impact on fragile financial market confidence, the Working Group’s suggestions were phased, with short- medium- and long-term proposals set within an imprecise timeframe, interspersed with periods of reflection for ‘study’, and personnel being liable to be poached from old regulatory agencies that would remain alive in one phase, but not the next, and with every opportunity taken to ensure that the responsibilities of no less than SEVEN newly proposed, expensive agencies would overlap as much as possible, while existing agencies would languish in a state of limbo or uncertainty pending prospective abolition, or not, as might be decided in a later phase.
Self-evidently, this confused prospectus is a recipe for undermining confidence in the integrity of financial market regulation, and therefore in the integrity of the financial markets themselves, as well as maximising the potential for obfuscation, as will be seen:
(A) THE SHORT-TERM PROPOSALS:
The President’s Working Group on Financial Markets is/was intended, we read, to be composed of a Coordinator of Financial Regulatory Policy and to cover the entire American financial sector, as indicated above, not merely the financial markets.
It was thus to incorporate banking regulators not currently participating in the study group, and would need to broaden its financial focus to capture the whole of the financial sector.
Hence the Working Group was to facilitate inter-agency coordination and communication, with a view (ostensibly) to developing proposals to mitigate all systemic risks to the financial system, to enhance the integrity of the financial markets, to promote protection of consumers and investors, and to support the efficiency and competitiveness of the financial markets.
Since overall ‘competitiveness’ covers the stance of any given financial market environment by comparison with foreign counterparts, the Working Group would or will have had to consider the impact of any proposals it puts forward on the competitiveness of the market in question, with its equivalents abroad; and the moment that such considerations had to be considered, the knee-jerk response of the Working Group’s membership is liable to have been to opt for the most lenient and liberal ‘solution’ on the drawing board.
As for the proposed creation of a Federal Mortgage Origination Commission (MOC), this huge new bureaucracy would be headed by a Director appointed by the President of the United States for a four- or six-year term – which means that, in accordance with the standard corrupt US practice, the job would be likely to go to a presidential crony.
The six Board members would be supplied from the Federal Reserve, the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS) and the Federal Deposit Insurance Corporation (FDIC), even though the last of these three agencies were to be abolished under the proposals, and the Federal Reserve itself remains vulnerable, under unpublished H.R. 2778 of the 110th Congress, to be abolished and merged within the US Treasury.
The other two Board Members would be supplied from the National Credit Union Association and the Conference of State Bank Supervisors.
The new Mortgage Origination Commission would develop minimum licensing standards, testing criteria and a system for grading the adequacy of each State’s financial regulatory arrangements. The drafting of regulations covering national mortgage lending legislation would, the Working Group apparently proposes, remain exclusively with the Federal Reserve, as provided for under the Truth in Lending Act.
Finally, the States should be given clear authority to enforce Federal mortgage legislation upon independent mortgage originators, that is to say, those mortgage originators considered to have been responsible for originating most of the so-called ‘sub-prime’ loans.
There was no reference to the practice of collectivising such mortgage loans, let alone with false documentation purporting to represent other mortgages but which lack any underlying asset at all, for the purpose of ‘securitisation’ and marketing to gullible investors at home and abroad who may not perform adequate (or any) due diligence.
For the short term, too, the Treasury’s blueprint put forward two considerations relating to the overall stability of the financial markets. Specifically:
(1) The prevailing temporary liquidity provisioning process, designed to alleviate threats to market stability (launched in December 2007 in the face of the crisis of confidence which overwhelmed the American authorities given the accumulated consequences of their incompetence, criminality and mismanagement of the US financial system), must ensure:
• That the process is calibrated and transparent (with no definition of terms here);
• That appropriate conditions are attached to the lending, (with no explanation of ‘appropriate’);
• That information flows to the Federal Reserve System via on-site examinations, and/or that other conditions or means can be imposed as determined by the Federal Reserve, with no recourse and without any indication here of what the Federal Reserve might have in mind.
(2) The President’s Working Group should consider broader regulatory issues related to discount window access for non-depository (i.e., investment banking) institutions. So, this Working Group has not yet undertaken such considerations? What, then, was it doing between August 2007 and March 2008, exactly?
(B) THE MEDIUM-TERM PROPOSALS:
Under this heading, the Treasury recommended, as summarised above:
• Elimination of ‘redundant’ banking regulators, without providing any rationale for such a drastic and reckless measure, and without having practical alternative proposals formulated or in place;
• Closing down the Office of Thrift Supervision, ditto;
• Folding the responsibilities of the Office of Thrift Supervision into the Office of the Comptroller of the Currency, again with no rationale for such action being provided.
Having shredded key existing regulatory institutions without replacing them (at this stage), the Treasury proposed that the next step should be that a leisurely ‘study’ should be undertaken, to establish whether the Federal Reserve or the Federal Deposit Insurance Corporation (the FDIC) should have oversight of the State-chartered banks.
This seems to us to be quite ridiculous, and asking for trouble. First, some existing regulators are abolished, without the Treasury at this stage having a clue what should take their place. Secondly, having abolished the regulators, the Treasury would then embark upon a ‘study’ to decide what to do next, as it says it is undecided (cannot make up its mind) whether the Fed or the FDIC should oversee the State-chartered banks – a confused recommendation akin to throwing all the furniture out of the window before deciding what, if anything, should replace it.
A moment’s reflection will convince even the most enthusiastic supporters of the corrupt US ‘Paulson’ Treasury that these proposals are, of put it mildly, mischievous.
Nobody who cares about US financial market stability can possibly take them seriously: indeed, the proposals , even as far as has so far been described here, are so mixed up and destabilising, that it is no exaggeration to ask whether they represent some kind of spoof.
Has some malevolent gremlin substituted this mischievous verbiage for what the Working Group actually submitted? Given the track record of ‘Paulson’s criminalist Treasury, that may not be as far-out a proposition as it may appear to be.
The third element of the intermediate recommendations brought forward by this muddled report departed from common sense by recommending that the Federal Reserve – which has achieved notoriety thanks to its two-tier policy of purporting to represent the Rule of Law while at the same time surreptitiously condoning and facilitating corrupt financial practices through exploitation of the unaudited and secretive Federal Inter Bank Settlement Fund – should acquire oversight and rule-making authority over payment and settlement systems that process payments and transfer securities between financial institutions and their clients.
This would be worse than placing the fox in charge of the chicken coop: it would ultimately lead to the liquidation of the chickens by guaranteeing the perpetuation of the fraudulent finance model that has been exposed by notorious recent developments. And again, no coherent rationale for this supposed ‘reform’ was presented with the recommendations.
Put another way, the report then recommended that the Federal Reserve should acquire oversight and, inconsistently, rule-making authority, over the payment and settlement systems that process payments and transfer securities between financial institutions and customers.
Since this all-embracing ‘reform’ would include ALL institutions, this would mean inter alia that the Federal Reserve would in practice acquire rule-making authority over securities broker-dealers. Hence, the rule-making authority to be abolished with the folding of the Securities and Exchange Commission (see below) would reappear under the aegis of the Federal Reserve, although we are not told what category of rules the Fed would promulgate. It can be taken as read that the rules to be promulgated by the Federal Reserve would bear no discernible relationship to the rules long since established (but lately, not enforced) by the Securities and Exchange Commission.
On top of this nonsense, the proposals recommended a further unresolved ‘solution’, calculated to maximise uncertainty – this time in the insurance sector. First, the Working Group floated the idea of creating a Federal regulator to oversee the insurance industry.
Then, after floating this suggestion, the Treasury wants to ‘ask Congress’ to create a new Office of Insurance Oversight (OIO) which would function from within the Treasury, meaning of course that the Treasury would control the insurance sector directly. Since the Treasury, like the US Federal Reserve, has demonstrated that it is thoroughly corrupt, this recommendation would simply enable the corrupt Treasury to capture and channel the well-known corruption that bedevils the insurance sector in the United States. The OIO would supposedly focus upon international insurance sector issues, while also providing the Treasury with ‘advice’ – a completely meaningless concept since the entity, resident within and therefore a part of the Treasury, would accordingly be advising itself.
[The probable hidden intention here would be to replicate the Federal Financing Bank (FFB), which is likewise an office (plus some filing cabinets) situated within the US Treasury but which for many years enjoyed off-budget status, thereby providing the Treasury with increased ‘wriggle-room’ for its usual ‘smoke-and-mirrors’ financial shenanigans. As matters stand today, the Federal Financing Bank is one of the basic mechanisms that enables the Secretary of the Treasury to manipulate the Government’s finances by exploiting the fact that is allowed by statute to have $15.0 billion of debt outstanding at any one time, so that by means of creative bookkeeping, up to $15.0 billion extra can be borrowed on those occasions when the Congress has deployed its residual ‘control’ over the spending of the Executive Branch by refusing to raise the Statutory Debt Limit, in exchange for some Federal Budget concession or other that it seeks to extract from the Executive Branch].
In short, and Office of Insurance Oversight inside the Treasury would simply be leveraged by the corrupt Treasury for its own purposes, and in furtherance of the dubious interests of the official perpetrators of fraudulent finance operations who have been cornered and are running for cover.
Even worse are the quite appalling proposals affecting the securities sector. The Working Group suggested, as mentioned above, that the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) should be merged – again, providing no rationale for such a radical shake-up. The actual purpose here would be to end the settlement reached by the Securities Acts of 1933 and 1934, which provided for the securities sector to be governed by the strict application of precisely defined rules – the settlement that ended the chaos arising out of the undisciplined free-for-all allowed in the 1920s, when bucket-shops ripped American investors off and investors enjoyed no protection from sharks other than that provided by the ‘Blue Sky’ above – in favour of standardising the so-called ‘principles-based’ approach employed by the ineffective Commodities Futures Trading Commission. Neither the SEC nor the CFTC have, in recent years, fulfilled their regulatory responsibilities, due to internal corruption; but scrapping the rules-based approach in favour of the CFTC’s permissive ‘principles-based’ approach would guarantee and perpetuate financial corruption perhaps for generations to come.
An indication of the deceptive nature of this recommendation can be gauged by the mealy-mouthed language employed to present this sorcery for public consumption. Specifically, the Working Group postulated that the Securities and Exchange Commission should seek to ‘preserve’ the CFTC’s principles-based approach, presupposing of course that the SEC should DROP its rules-based approach: but in order to mask this deception, THIS CENTRAL RUSE WAS LEFT UNSTATED.
‘Preserving’ the principles-based approach used by the ineffective CFTC would, self-evidently, be inconsistent with ‘preserving’ any rules-based approach – which is the point of this proposition.
What the Treasury is seeking to achieve here is to pass off a fraudulent reform as a key element of an improved regulatory system, when what would be perpetrated would be the de facto elimination of the existing framework which, if properly applied, would protect investors from fraud and make it impossible for fraudulent finance operations such as those that have been exposed, to exist, let alone to flourish. In other words, this recommendation represents a typically diversionary fraud by the ‘Paulson’ Treasury, consistent with the reputation it has earned for itself as an institution of the Federal Government in which no trust can currently be placed, not least because, on the basis of its recent behaviour, it cannot be relied upon to honour its obligations.
(C) THE LONG-TERM PROPOSALS:
Not content with the chaos that would be created as a consequence of this wrecking operation to date, the Working Group, true to its false prospectus, capped this truly shambolic mish-mash with a series of half-baked long-term proposals, the net effect of which would be to leave everything up in the air, thereby maximising scope for a 1920s-type free-for-all – and ensuring that the investment environment of future years would be consistent with the underlying intention of this dog’s dinner of spurious proposals – namely to facilitate the perpetuation of fraudulent finance, following the shocks administered to the criminalist kleptocacy by recent developments.
By staging its fitful proposals over a prolonged and imprecise timeframe, the US Treasury has of course already compromised the prospects for global financial stability, since no-one now knows what is coming next. The fact that proposals have been put forward in such a vague, disjointed and dissonant manner has itself added to the febrile atmosphere of uncertainty, although the Treasury doubtless hopes that the deceptions encased within these proposals will have passed its targeted audiences by – an example being the attendees at the Chatham House event in London addressed by ‘Paulson’ at the beginning of July. These people will have been easily impressed by anything that the Secretary of the Treasury might have told them – the purpose of such presentations being to build an unthinking ‘consensus’ (in London, especially) for the treacherous ‘reforms’ that the corrupt ‘Paulson’ Treasury is putting forward.
The so-called long-term proposals (with no timeframe mentioned) would involve, to begin with, a revolution in the status of all US financial institutions. All lenders equipped with Federal deposit insurance would be granted a brand new charter certifying them as a Federally insured depository institution. All insurers offering retail products involving some degree of Federal guarantee, would be chartered as a Federal insurance institution, under the direct regulatory control (see above) of the Treasury. Finally, all other types of financial institution would receive a charter signifying their status as a Federal services provider. Note the crucial use of the adjective ‘Federal’ here: what is intended is the usurpation or duplication by the Federal Government (it is not yet clear which) of ALL the regulatory functions currently exercised by the State Governments. Whether usurpation or duplication is intended, this proposition must have gone down like a lead balloon in State capitals.
Under the first of this final batch of dubious proposals, a so-called Market Stability Regulator, namely the Federal Reserve itself, or else an entity that is subservient to it (unclear), would be established, which, however, would hardly undertake any regulating of the financial markets at all. Instead, it would ‘look out for’ threats to the stability of the US financial system, whether they might originate with mortgage lenders, banks, insurance companies, investment banks, hedge funds or any other category of institution. The only environment in which the so-called new Market Stability Regulator would intervene would be when it had formed the subjective judgment that corrective action needed to be taken to address current risks, or that it is necessary to constrain further risk-taking. This proposal appears to have nothing to recommend it at all.
Establishing further expensive bureaucracies without any teeth is a pernicious practice equivalent to a fudge, and the impression given here is that the Working Group needed somehow to convey the impression that the permissive environment that it was subversively recommending would be watched closely for aberrations, whereas the underlying and thoroughly dishonest intention and consequences of these proposals will be to maximise potential for market abuses across the board.
The next piece of gross mischief would entail the establishment of a so-called Prudential Financial Regulatory Agency, with a brief to regulate financial institutions which have explicit Government guarantees associated with their business operations. Hence this new agency would regulate all institutions equipped with Federal deposit insurance. This agency would also take over the roles of the current Federal prudential regulators (for no discernible reason), such as the Office of the Comptroller of the Currency and the Office of Thrift Supervision.
The agency should, the report argued, focus on the protection of consumers and ‘help’ to maintain confidence in the financial system (by unspecified means). The agency would operate on the basis currently applied to the regulation of the insured depository institutions – in which case, since this new agency would replicate existing practice, why do the existing regulatory arrangements need to be changed? – using the standard capital adequacy requirement techniques, imposing investment limits, circumscribing the scope of an institution’s activities, and directing on-site risk management supervision. The agency would be focused on institutions, rather than operating generically.
On top of all this, a separate new regulator was proposed, to focus on the powerful and wayward Government-Sponsored Enterprises (GSEs) which have been surreptitiously exploited to facilitate fraudulent finance operations, such as the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal Home Loan Bank System. As we discussed in our report dated 26th December 2007, corrupt mortgage lenders have been transferring the full risk and ownership of mortgages to these off-off-budget entities which were established by the Government but positioned immediately upon their foundation, into the private sector, so that they could be excluded from the scrutiny of the Federal Budget process.
The crisis surrounding Fannie Mae and Freddie Mac that blew up during the week ending 11th July 2008 – over seven months after we posted our report on the abuse of the foreclosure process on 26th December 2007 – illustrated the mischievous and destabilising nature of the Working Group’s proposals, because this dimension of the crisis ‘suddenly‘ ran out of control in July 2008, despite the fact that the President’s Working Group had intended to ‘deal with’ the Government-Sponsored Enterprises problem under its ‘long-term’ category, rather than as an immediate, burning issue of the greatest significance, as flagged by our report dated 26th December last year.
This miscalculation alone showed the Working Group to be extremely incompetent, in dereliction of its self-appointed duties, and quite incapable of handling the huge mess for which its own largely corrupt membership has been specifically responsible. Fancy treating the US GSEs as a long-term problem when several of the key GSEs have all along been at the very centre of the machinery of fraudulent finance that is in the process of being widely exposed, and which the Working Group was meant to be addressing! This was surely taking OBFUSCATION too far.
No rationalisation was presented for the proposal that a separate regulator should be established to ‘regulate’ these off-budget entities, other than the spurious one that implicit Federal backing is qualitatively differentiated from explicit Government backing. Presumably the woolly thinking here is that the legal status conferred by Federal Statute on the GSEs would be violated if the proposed Prudential Financial Regulatory Agency were to assume regulatory responsibility for the GSEs – which have hitherto, by the way, escaped all regulation and have thus provided fruitful ongoing scope for organised criminal and financial fraud operations.
The other agencies proposed by the Working Group simply would compound the confusion and the seemingly deliberate dispersion of responsibilities which this dog’s dinner of recommendations perpetrates. Specifically:
• A so-called Conduct of Business Regulatory Agency would cut across the ‘responsibilities’ of the mish-mash of other agencies, establishing the basis for endlessly unresolvable turf wars that lead nowhere. This bureaucracy would ‘observe’ disclosure information and business practices (with no indication of what it would do with these observations), and would also engage in the licensing of certain categories of business firms (so that its personnel would be tin gods).
It would supposedly absorb ‘many of’ the functions of the Securities and Exchange Commission, the Commodities Futures Trading Commission, the Federal Reserve System, of the State insurance regulators and even the Federal Trade Commission. The rationale of all this is left unclear.
However it would do so, according to the Working Group’s blueprint, after an undefined period of uncertainty and therefore turmoil – during which hiatus the usual pork-barrel lobbying operations would have been deployed at full throttle, with no-one knowing which way any of the cats would be liable to jump, and a state of officially contrived chaos having long since been generated.
By this stage, the divisions of regulatory responsibilities will have multiplied to such an extent that every agency would have burgeoning responsibilities overlapping with some or all of the others, so that nothing at all could ever be resolved – a remarkably classical Leninist formula for ensuring the definitive perpetuation of the collective will of a small clique at the centre. Lenin established two orders for his Party-State, under which all the institutions of the State were replicated by Party entities. This meant that a complainant making representations to the State structures would find that his case would be frustrated by the parallel Party structures, and vice versa. This is exactly the state of affairs, albeit a much more fragmented and complicated one, that the President’s Working Group has put forward. This blueprint would have the following overall consequences:
• It would complete the process of discrediting capitalism which the free-wheeling fraudulent finance operations perpetrated by the exposed criminalist operatives and institutions have successfully initiated to date; and:
• By ensuring the perpetual overlapping of responsibilities with their concomitant bureaucratic turf warfare, it would institutionalise and confirm absolute power and freedom of corrupt action for the central controlling élite, namely for a successor group of organised financial criminals who would build upon this new foundation of institutionalised US regulatory confusion, to create the conditions for the next global financial showdown, which would certainly be terminal.
Since, whether ideologues like it or not, the ultimate objective is the destruction of free enterprise and the abolition of all private property except for the privileged criminalised élite, that showdown would be terminal. It is not going to happen, but that is the long-range objective.
Two other expensive US agencies would, under the convoluted blueprint, be tacked on to the contrived ramshackle mess so far recommended. The proposed Federal Insurance Guarantee Corporation, which is to replace (for no apparent reason) the existing Federal Deposit Insurance Corporation (FDIC), would charge premiums to ‘guarantee’ bank deposits and insurance payouts.
No terms are defined here (as is the case throughout this false prospectus), so it is not clear why the FDIC cannot, if really necessary, have its existing statute amended so as to expand or modify its responsibilities in accordance with this proposal. What is wrong with the existing structure?
This unanswered question is applicable throughout.
Finally, the Working Group floated the batty idea of a Corporate Finance Regulator which would supersede the functions of the Securities and Exchange Commission (SEC), and would focus on corporate disclosures, corporate governance, accounting matters, and other issues. Presumably the idea here is that there should be a special agency which sticks its nose into the affairs of US corporations generally – a suggestion that may mask a cynical political objective to subject all US corporations to an officially sponsored espionage system which would be abused, if information gathered by this agency fell into the ‘wrong’ hands. If we assume, as we must, given recent past experience, that the underlying intentions here are malevolent and mischievous, the creation of such an agency would signal to anyone who is not sitting on his or her brains that an ever more socialist United States had essentially finished with capitalism altogether.
There is also an obvious sense that these convoluted ‘regulatory’ proposals have been brought forward in bad faith for yet another reason: their purpose includes the need to deflect criticism that ‘nothing is being done to stop this happening again’. Meanwhile, the socialist European Union has predictably responded with various trial balloons suggesting that the unprecedented display of financial scandal that has been partially exposed, can at long last be exploited as a rationale for the imposition of European-style socialist (Communist) regulation which, by its nature and intent, would smother risk-taking and close off innovation.
For example, Tony Robinson, chief spokesman for the Socialist Group in the Soviet-style European Parliament, said on 3rd July 2008, quite correctly, that the capitalist system had disgraced itself and must now face much stricter regulation. Since we must agree that the capitalist system has indeed disgraced itself as a consequence of the hijacking of the American official structures by organised criminal cadres, it is hard to argue against what Mr Robinson had to say:
‘There is a groundswell of opinion building up for action at a European level. Our group wants a ban on all investment funds speculating on food. We support a proper functioning market, but what we have seen in this crisis is a most distasteful morality where decisions are driven by greed. Hedge funds have used debt to take over companies and strip out their assets. This must stop’.
Leaving aside the ideological hang-ups and ignorance of the market system embedded in these comments, it is a fact that although proposals for a pan-European regulator have not yet been crystallised into a draft EU Directive, the European Parliament has been ‘debating’ three separate proposals to crack down on private equity, hedge funds, and banking sector bonuses.
(Actually, no debate ever takes place inside the European Parliament: rather, the Members (MEPs) address the podium just as they do in the covert Soviet system. Indeed, the European Parliament chamber precisely replicates the Soviet model. In order to complete the transformation, all that would be necessary would be to replace the esoteric European flag above the podium with the familiar bust of Lenin and a nice red star plus a hammer and sickle, and we would all be back to square one. The Editor witnessed this reality in Brussels with his own eyes several weeks ago).
Should such an outcome materialise over time, as intended, the process would have been given decisive added momentum by the pillaging and fraudulent finance that have been exposed since June 2006. This would be a supposedly ‘unintended consequence’ of the organised criminality.
RESULT: EXTREME LACK OF REGULATION ENFORCEMENT
That the proposals put forward by the President’s Working Group are damaging and would have grim consequences has been well attested by people who know what they are talking about.
For instance no less than THREE former Chairmen of the Securities and Exchange Commission, David Ruder, Arthur Levitt and William Donaldson, have condemned these proposals outright, although the language they have used to date has been inappropriately circumspect.
Their general view is that a Treasury initiative to adopt the ‘principles-based’ regulatory approach applied by the Commodity Futures Trading Commission would be ‘a mistake’ (16) . David Ruder, an SEC Chairman under President Reagan, has commented that:
‘It’s not at all useful for the Securities and Exchange Commission to function on the basis of ‘a prudential-based attitude’ in which regulators solve problems by discussing them informally with market participants and asking them to change… we have an enforcement approach’ (17).
For his part, the former SEC Chairman, Arthur Levitt, a Bloomberg Board Member, has commented:
‘That proposal does more violence to protecting America’s investors from the standpoint of transparency as anything in the Paulson proposal’ (18) – referring specifically to substitution of a ‘principles-based’ approach for the tried and tested (until wantonly unenforced) rules-based approach which the existing securities market legislation requires of the SEC.
As matters stand the SEC is, however, considering the easing of its rules to allow foreign stock exchanges and brokerages to sell securities direct to US investors, under supposed surveillance by overseas regulators (such as the British Financial Services Agency) ‘who have rules that are similar to those in the United States’ (19).
In other words, even as we speak, the Securities and Exchange Commission is thinking of watering down its currently poorly enforced rules-based system to allow various foreign stock exchanges and brokerages to deal directly with US investors, rather than going through US intermediaries – so that there would be no control over the volume of dodgy financial ‘products’ that could soon be sold back into the United States, given that non-institution US investors would not necessarily be subjected to any surveillance at all. This might very well be hazardous in the future.
As for the immense problems surrounding derivatives – leveraged, securitised, hypothecated products yielding accruals that are not denominated in real US dollars, but rather exclusively as digitised entries generated electronically in just nanoseconds on bank statements – the Working Group’s proposals sidestepped them altogether: a sure indication that the real purpose of these proposals has never been to ‘solve’ any of the intractable problems created by the invasion of the capitalised system by organised crime, but rather that their purpose is precisely to obfuscate what has been happening so as to draw a veil over the criminal activities that have led to this crisis.
The irresponsible securitisation of ‘sub-prime’ loans and the hoodlum practice of mixing them up with fraudulent paper backed by no assets at all, were not even addressed.
THE ‘PROGRAMS’, OMEGA PONZI SCAMS, ETC.
Exotic investment schemes marketed by scamsters promising sky-high returns into which many Americans entered and ploughed their savings a number of years ago, and which have not paid out, may have purported to be exempt from registration under the Securities Acts of 1933 et seq. [see Glossary below] and in terms of State securities registration requirements.
Such unregistered schemes, unless narrowly they are exempt from registration in conformity with relevant stringent statutory restrictions (such as being confined, for instance, to no more than 35 subscribers nationwide), are all illegal and violate the National Association of Securities Dealers (NASD) and SEC regulations, and were/are also further illegal as they may not have been registered with the relevant State Securities Commission.
When considering such participations, such US investors, in conformity with the Prudent Man Rule under the 1933 Act [see Glossary] should, in performing their Due Diligence, have been in receipt, and should have reviewed, the necessary registration and prospectus documents meeting the requirements of the NASD, the SEC and State Regulators.
In cases where the issuer was a bank, the participants have undoubtedly been victimised. In all other instances, they will have acted on the basis of fraudulent documents which made them co-conspirators. The issuers were and remain engaged in Ponzi schemes, as we have several times reported [see Glossary and Appendix] and are all co-conspirators and open to prosecution under R.I.C.O. and other relevant US legislation, including multiple anti-money-laundering legislation.
Furthermore, it is likely that some American participants will have signed Non-Disclosure forms or agreements, a fatal error which will have meant that they can have no recourse to US authorities for relief from being scammed, not least because in having participated in any of these schemes and signing such forms, they became co-conspirators themselves, as indicated.
They cannot therefore seek protection from the relevant regulators, and neither can they disclose their participations, especially where money-laundering will likely have been intended, since this presupposes tax evasion: and under the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982, US taxpayers are required to report all sources of income, wherever it was earned anywhere in the world. It follows that all receipts by US taxpayers since the passage of this Act which have not been reported to the Internal Revenue Service are taxable, which means that all US taxpayer holdings in offshore accounts that are not declared for tax are vulnerable to payment of the tax and penalties. Imprisonment is also dished out to tax evaders in the United States with abandon.
But the participants in these programs have received nothing and have so far forfeited 100% of their investments. Having signed Non-Disclosure documents purporting to protect the program organisers or distributors from the consequences in the United States of their criminality, and the participants from the consequences inter alia of prospective tax evasion and of co-conspiring in a felonious transaction, some participants have been left dangling and are at the mercy of ruthless MK-ULTRA-style perception manipulators who have been managing their expectations for years.
Under the regular securities laws of the United States, investors and participants have to show source of funds. How can they take receipt of the proceeds of these ‘program’ and Omega-type Ponzi schemes without exposing themselves to US authorities, in many cases with prospectively grievous consequences?
These participants need to ask themselves: are the websites that may have been managing their expectations for years disclosing both sides of the equation, or have they simply been expressing justified anger and frustration at the brazen evil of the high-level, well-connected perpetrators of these scamming programs, thus deceiving their intended readerships by failing to look at the other side of the issue, namely the possibility that the scamsters may have compromised the investors?
They also need to consider whether it is likely that the hitherto ‘protected’ perpetrators of these scams have, all along, also been relying upon their knowledge that their victims may be impotent because they may be engaged in prospective tax evasion, as a rationale for the integrity of the Greenspan-Bush Sr. ‘Never-Pay’ model. In this connection, it is axiomatic that crooks always seek to compromise their victims, thereby ensuring, for instance, that they cannot testify against them.
In the case of the Swiss banks that marketed such participations, their first priority is understood to have been to obtain the targeted investor’s signature on the coveted Non-Disclosure document. Then the participant was typically asked to prove his or her funds. Thirdly, the participant may have been requested to travel to Europe, or to courier funds to the bank’s European address, where their account would have been be opened. In cases where very large amounts were put up, the bank’s aircraft was actually dispatched to collect the participant and his funds..
Participants in these schemes may be caught, if any of these unfortunate conditions apply to their circumstances. Co-conspiracy is a function of motive. If the motive was to receive inordinately high yields and/or to evade taxes in breach of the Prudent Man Rule, TEFRA and/or Internal Revenue Service regulations, it is not at all clear on what basis expectations of repayment of principal with interest may be predicated. The fact that the perpetrators (‘principals’) of these scams are indeed despicable, ruthless snakes is no comfort for the participants because the perpetrators may have taken care to ensure that those whom they have scammed are co-conspirators as well as victims.
Even more disconcertingly, the professional perpetrators of these fraudulent finance operations were fully aware of what they were doing from the outset, and may have deliberately ensured, in these cases, that their participants became co-conspirators and would therefore become impotent to recover their funds, which the perpetrators always intended to steal.
Their evil intentions will have been based upon extensive experience of the psychological reality that victims of financial Ponzi and Pyramid scams often collapse into a state of permanent denial, unable to move beyond the mental barrier that they have lost everything. This attitude is typically associated with embarrassment at the fact that the victim has been scammed, a state of mind akin to the humiliation of being mugged or the victim of common theft.
What has been achieved to date as a direct consequence of these exposures, though, is that life has been made extremely uncomfortable for the professional and official sector perpetrators of all categories of fraudulent finance, and will most certainly become more uncomfortable day by day – as official enforcement procedures, which grind slowly but surely, bring more and more decisive pressure to bear on these snakes. Despite everything that has had to be said above, this may still provide some minimal degree of comfort, no doubt, for the victimised participants; but it may not alleviate their problems or their suffering.
What we can say with confidence is that the prevailing sense of pessimism in the United States is misplaced. Perceptions are often slow to catch up with reality. We are being bombarded with data which has almost no bearing on the current environment, which can be summed up as follows: the crooks are on the run, are being hounded day and night, have nowhere to turn, did not anticipate what was about to hit them, and have been caught completely unprepared for the onslaught.
S.E.C. ‘CORRUPTLY ENGAGED IN OWN ACCOUNT TRADING’
And here is another exposure: the Securities and Exchange Commission – still the chief securities market regulator, no less – is itself apparently corrupt. For instance, it has failed to enforce its own regulations, and has only (it appears) been galvanised into action very recently, in response to the cacophony generated inter alia by our reports. No-one has been impressed by Mr Cox’s statements recently, because the failure of the SEC to do its job properly has become widely known.
The SEC irresponsibly dismantled their own enforcement division, and to make matters very much worse, have been engaged in trading, or allowing insiders to trade, for their own account.
For what purpose? The likelihood must be that SEC personnel have been trading for their own personal enrichment, taking their cue from the Black House: the nefarious principle being that if the President of the United States and his most senior colleagues are content to exploit public office for self-enrichment purposes, then what is to stop lesser officials doing the same?
The fact that the Securities and Exchange Commission, which exists for the purpose of regulation only, has reportedly branched out into participating in exotic money-making programmes instead of concentrating on its job of regulating the securities sector, provides us with a further indication of the extreme decadence of the US financial system which can hardly hope to recover unless such grotesque abuses are eliminated.
COUNTER-PROPOSALS FOR CLEANING UP THE MESS
It is perfectly clear to anyone who is not sitting on their brains that the so-called ‘Paulson’ Treasury proposals, a.k.a. the mish-mash of half-baked notions served up by the President’s Working Group on Financial Markets, is not fit for purpose and should be relegated to the dustbin of history with immediate effect. It is further clear that these messy proposals have actually exacerbated the crisis by introducing new dimensions of uncertainty surrounding future US Government policies, thereby further undermining confidence in an environment so febrile that the entire edifice of fiat money cards has been teetering on the verge of collapse anyway.
Given the perverse effects of these proposals on financial market confidence, we can legitimately go further, and accuse the Working Group of irresponsible behaviour which is tantamount to the financial criminality which the proposals are intended to obfuscate.
To place consideration of the problems surrounding the Government-Sponsored Enterprises in the ‘long-term reform category’ when, within months of our report on the subject last December, this central dimension of the overall crisis blew up in the Working Group’s faces, surely provides all who ‘need to know’ with sufficient evidence of the Working Group’s incompetence, let alone its clearly mischievous intent, to warrant the Working Group being closed down forthwith – before it does any more damage, like the proverbial elephant in the china shop.
Michael C. Cottrell, M.S., the securities markets expert, has therefore prepared the following basic recommendations, which should be substituted for the cack-handed and extremely damaging false prospectus promulgated last March by the disreputable President’s Working Group on Financial Markets, fronted by this ‘Paulson’ fellow.
MR COTTRELL’S COUNTER-PROPOSALS ARE AS FOLLOWS:
(A) Comprehensive funding of the necessary enforcement structures, which must remain intact. The organisations most suited for this function remain the Securities and Exchange Commission and the Federal Trade Commission. Before summarising Mr Cottrell’s proposals, here are some examples of what has happened when these regulators fail to do their jobs properly, or at all:
(1) The Securities and Exchange Commission (SEC): This entity must enforce its regulations with vigour, in the context of the further reforms that Mr Cottrell recommends, below:
The Chairman of the Senate Banking Committee, Christopher Dodd, and Senator Jack Reed, have asked the Government Accountability Office (formerly the Government Accounting Office, GAO) to investigate why sanctions imposed by the SEC plunged by 51%, to $1.6 billion, in the regulator’s most recent fiscal year. According to the SEC’s Annual Reports, it opened 15% fewer probes during the same period, than in the preceding fiscal year (20).
For instance, the Securities and Exchange Commission failed to enforce its regulations in the case of American Business Financial Services, Inc. (ABFS), located in Philadelphia, PA, which operated from 1988 until it declared bankruptcy in January 2005.
This case is revealing in the context being considered here.
ABFS financed its operations by selling its notes to the general public, by means of newspaper advertisements and mass mailings, which promised high interest yields. The notes it sold carried no collateral and were not insured, so that they were worthless when ABFS declared bankruptcy (21). More than 22,000 individual investors lost a total of approximately $750 million. The bankruptcy trustee has filed suit against Bear Stearns & Co., J. P. MorganChase & Co., Morgan Stanley and Crédit Suisse, to recover monies lost when these investment banks allegedly allowed or enabled ABFS to overstate the value of assets on its books (22).
ABFS extended loans to borrowers burdened with poor credit, worth more than $6.0 billion in the aggregate, which were then packaged for marketing purposes, but which essentially represented securitised pools of sub-prime loans. ABFS also secured cash from individual investors by selling the investors uncollateralised notes via public offerings (23).
The investment banks converted the sub-prime loans and uncollateralised notes into ‘interest only strips’, or ‘residuals’ which represented ‘the right to receive future cash flows from securitised loans’ (24). ABFS assigned to these securities a value much higher than their actual worth because the falsification of these values made ABFS look more financially sound than was in fact the case.
Specifically, ABFS booked more than $500 million in ‘fictitious assets’ when the investment banks allowed ABFS to underestimate early repayments of the ‘sub-prime’ loans. ABFS assumed its had a 23% prepayment rate when, in reality, Crédit Suisse had questioned the percentage as being too low. In fact, repayment rates were running at between 30% and 35% of total such ‘assets’ (25) .
Wall Street investment banks finally stopped securitising AFBS sub-prime loans when one investment bank received a letter dated 15th May 2003, addressed to the Federal Bureau of Investigation (FBI) and the SEC asking: ‘Who is protecting these (AFBS) investors?’
Notwithstanding this state of affairs, the Securities and Exchange Commission did not launch an investigation into the behaviour of ABFS until 2004, when ABFS asked for SEC approval to enable it to make another public offering (26). In this, as in so many other instances, the US Securities and Exchange Commission simply failed to enforce its own regulations.
We have summarised these regulations in our reports since 2006, in case this fact had escaped the SEC’s notice. It hasn’t escaped the notice of the financial community generally, so we are entitled to ask why the Securities and Exchange Commission appears to have been an exception.
The SEC regulations of specific relevance to these issues that NEED TO BE ENFORCED include the following [see also the usual Annex at the end of this report].
These details have been published here for at least 18++ months, so as to emphasis the chronic necessity of substituting the Rule of Law for the Law of the Jungle:
• NASD Rule 3120, et al.
• NASD Rule 2330, et al
• NASD Conduct Rules 2110 and 3040
• NASD Conduct Rules 2110 and IM-2110-1
• NASD Conduct Rules 2110 and SEC Rule 15c3-1
• NASD Conduct Rules 2110 and 3110
• SEC Rules 17a-3 and 17a-4
• NASD Conduct Rules 2110 and Procedural Rule 8210
• NASD Conduct Rules 2110 and 2330 and IM-2330
• NASD Conduct Rules 2110 and IM-2110-5
• NASD Systems and Programme Rules 6950 through 6957
(2) Federal Trade Commission: This Government structure has authority to investigate fraudulent transactions in all markets.
According to a plea bargain agreement announced on 8th April 2008, a former Board Member at the New York Mercantile Exchange pleaded guilty to two felony counts relating to illegal natural gas trading. Mr Steven Karvellas, aged 48, made trades and then waited to watch how they turned out before assigning the trades either to his own account or to his client’s account – an abuse referred to as ‘trading ahead of the customer’, which is a violation of the SEC’s Fair Dealing With Customer rules. Karvellas was a floor Exchange Board Member of the publicly traded Nymex Holdings, Inc., and indeed headed up its compliance review committee when the illegal trades took place (27).
Under the supervision of the Commodity Futures Trading Commission (CFTC), floor brokers such as Mr Karvellas can operate both as broker for customers and trade for own account operations. This practice is referred to as the ‘dual trader’ mode, with the floor broker under an obligation to act at all times in the customer’s best interest, a responsibility that entails an obligation upon the broker to seek the best possible prices for the customer 28 .
Ironically (perhaps not, since we are of course dealing with the familiar double-mindedness here), in a letter addressed in 2002 to Nymex Holdings members as part of his campaign for re-election to the Board, Mr Karvellas opined that ‘the shocking collapse of Enron indicates that our Exchange does wear a white hat in the financial world. We illustrate how markets should operate, honestly and with openness and transparency that gains the public’s trust’ (29).
In January 2008, a Grand Jury subpoenaed a five-year-old trading ticket related to this investigation and to Mr Steven Karvellas, who pleaded guilty to tampering with physical evidence by ordering a subordinate to destroy the subpoenaed trading ticket (30).
Nymex, which has been or is currently being acquired by the Chicago Mercantile Exchange (CME, Inc.), and other floor exchanges, have been financially hurt by the emergence of electronic trading, and have attempted to reduce costs and to speed up the ‘open-outcry’ process [see Glossary] (31).
But floor trading remains vulnerable to manipulation: for instance, in 2005, 15 traders at the New York Stock Exchange (NYSE) were indicted on charges of cheating investors. Although many of these traders actually won their criminal cases, the Exchange realised that it had to ‘do something’, and upgraded its surveillance systems at a cost of about $20 million (32).
These examples, which could be replicated here ad nauseam, illustrate the absolute necessity for a regulatory régime that is underpinned by enforcement, which must be implemented without fear or favour at all times – so that everyone participating in the financial markets is aware of the severe consequences of any breach of the rules and regulations.
Talk of operating on the basis of relatavist ‘principles’ is not only irresponsible and unprofessional: it encourages the misplaced belief among the easily swayed and the corrupt, that the ‘way forward’ need not include enforcement as conceived in the 1930s, so that everyone can feel comfortable and at ease – a recipe for the proliferation of fraudulent finance on an open-ended basis.
Moreover it is crystal clear that the dishonesty, hesitation and the sheer confusion surrounding the ‘Paulson’ proposals have severely exacerbated a fragile situation and the crisis of confidence which the criminal incompetents in charge of US financial affairs have never intended, on the basis of the massive evidence of their ongoing corruption, should be addressed in an orderly fashion, since their agenda has all along diverged from the public interest.
Almost as though it had suddenly woken up from a long slumber, the SEC was reported to have launched a probe on 13th July 2008 into the manipulation of stock prices through the spreading of false rumours, focusing on compliance controls which are supposed to be applied by traders and investment houses. This initiative appeared to mimic a similar attempt by the UK Financial Services Authority FSA) in London, to crack down on rumour-mongering and short-selling in the UK market following the plunge in the shares of HBOS (Halifax Bank of Scotland) last March.
The FSA was unsuccessful in its search, suggesting that the SEC’s response represents a belated cosmetic attempt to be seen to be ‘doing something’, since the SEC must certainly be aware of the FSA’s failed investigation. However nothing that the US regulator does now, with the benefit of any hindsight and with the fraudulent prospects implied by the Treasury’s proposals hanging over its head, can make up for its past failure to enforce its own regulations – as a consequence of which fraudulent securities operations/scams have assumed colossal and, as we have been observing, catastrophic proportions, in recent years.
The SEC’s failure and dereliction of duty is no reason for abandoning the enforcement approach in favour of a contrived, weak ‘principles-based’ approach. On the contrary, what remains essential is proper and rigorous enforcement of appropriate regulations.
(B) Mr Cottrell insists that the following structure and disciplines should be created and imposed:
Office of Inspector General for Financial Markets Compliance (OFMC):
A new regulatory entity with the function described by its title should be established by Statute, who would be required to report directly to the Chairman and ranking Member(s) of the following US Congressional Committees, who would be considered to be their superiors (Bosses):
• The US Senate Financial Services Committee.
• The US House of Representatives’ Financial Services Committee.
All management and field personnel employed by the Office of the Inspector General for Financial Markets would need to be fully trained and qualified compliance officers. Specifically:
• They must be field-tested and recognised as licensed compliance officers, and they must all be licensed under the following régimes:
(1) Financial Industry Regulatory Authority (created in July 2007 through consolidation of the NASD (National Association of Securities Dealers) and the NYSE (the New York Stock Exchange) member regulation régimes [see also: Glossary]) with respect to the following examinations:
• Series 24 [General Securities Principal];
• Series 27 [Financial and Operations Principal];
• Series 4 [Registered Options Principal];
• Series 51 [Municipal Fund Securities Principal]; and:
• Series 53 [Municipal Securities Principal].
(2) They must be licensed members of NYSE Member firms.
(3) They must be licensed as US Treasury compliance officers.
Nothing short of the deployment of management and field personnel qualified to these demanding industry standards will suffice. Because this is so, it is self-evident that the half-baked, confused and deliberately fragmentary proposals put forward by the President’s Working Group, which are intended to OBFUSCATE the situation and to lodge total power in the hands of the Presidency by default, with no checks and balances at all, represent a fraudulent prospectus, which should be consigned to oblivion forthwith. NO FURTHER CONSIDERATION SHOULD BE GIVEN TO THEM.
(C ) Michael Cottrell further demands (recommends is much too weak a word here) that The Glass-Steagall Act of 1933 must be re-enacted in order to re-establish once and for all the very stringent regulatory requirements enshrined in the 1933 and 1934 Securities Acts.
In the same context, and in parallel, the divisive Gramm-Leach-Bliley Act – written by lobbyists for the banking sector – must be repealed.
(D) Regulation of Credit and Debt Derivatives:
An essential further reform will be the development of overdue new securities regulations specifically focused on the creation, use and risk limitation of structured instrument vehicles (credit and debt derivatives). These new regulations would be enforced by the Securities and Exchange Commission (and the Federal Trade Commission, as appropriate), and of course subject to compliance oversight by the trained personnel of the newly established Office of the Inspector General for Financial Markets Compliance [see above].
(E) Finally, the revitalised regulatory regime for all US financial markets will be seen to be entirely rules-based, with all ‘legacy’ ‘principles-based’ thinking and language expunged from the system, which must be backed up by rigorous enforcement applied impartially and across the board.
SEC, FTA AND OFMC management and field personnel would be well remunerated, but at the same time subject to specified and appropriately severe sanctions in cases of official corruption within these structures. One reason why the regulations have not been properly enforced, or applied at all, in recent years is that the existing agencies, and/or certain personnel within them, have been corrupted. Fish rot from the head.
This far simpler regulatory régime requires a minimum of new legislation, building upon existing regulatory structures and experience, with the introduction of precisely ONE new US agency (the OFMC), compared with SEVEN new burdensome, confusing, bureaucratic, intentionally overlapping, obfuscatory agencies as proposed by the Working Group on Financial Markets (33).
Therefore, these straightforward reforms, instead of being spurious and deliberately opaque and spread out over an indeterminate timeframe, exacerbated by the carrying out of vague ‘studies’ as specified in the ‘Paulson’ proposals, could be implemented within a very limited timeframe at an early stage of the next Presidency. Establishing ONE new agency instead of SEVEN should, of itself, provide a powerful incentive for adopting Mr Cottrell’s straightforward proposals and for rejecting the hugely expensive and mischievous dog’s dinner put forward by the Working Group.
Such an initiative would do more to restore confidence in the battered US financial markets than innumerable further confused announcements by the ‘Paulson’ Treasury and other intermeddlers, and would place the incoming Administration on a sound financial market footing, without which everything it touches will disintegrate as has happened under the criminalised Bush II Presidency.
In short, these are straightforward, practical reforms which can be legislated for and implemented quickly. They can also be publicised with advantage ahead of their implementation, so that the US and world financial markets are made appropriately aware of the smack of firm, sound and decisive governance, with all that this approach will imply for the restoration of confidence in the battered financial markets in the United States and worldwide. (34).
Notes and References:
1. Howard Abadinsky, ‘Organized Crime’, 6th Edition, Belmont,
Wadsworth Thompson learning, 2000, pages 49-58
2. Gary Giroux, Ph. D., ‘A Short History of Accounting and Business’, available at: http://acct.tamu.edu/giroux/financial.html (Internet), page 1.
3. Giroux, op. cit., page 1.
4. Giroux, op. cit., page 2.
5. Michael C. Cottrell, M.S., ‘Elite Power & Capital Markets’ thesis submitted in partial fulfillment of the requirements for Master of Science, Mercyhurst College, 2001, page 33.
6. Cottrell, op. cit., page 33.
7. Cottrell, op. cit., page 33.
8. John H Hollands, Acting Director, Investment Company Division, Securities and Exchange Commission (SEC), ‘Government Regulation of The Distribution of Investment Company Shares’, dated 8th October 1941, page 2.
9. Hollands, op. cit., page 2.
10. Hollands, op. cit., page 2.
11. Hollands, op. cit., page 2.
12. Hollands, op. cit., page 2.
13. Hollands, op. cit., page 2.
14. ‘Treasury’s Summary of Regulatory Proposal’, The New York Times Company, 29th March 2008, available at: http://www.nytimes.com (Internet).
15. Kara Scannell and Michael R Crittenden, ‘Treasury’s Blueprint: the View from Washington’,
The Wall Street Journal, 31st March 2008, Section A, page 15.
16. Jesse Westbrook, ‘SEC Overhaul Bid by Bush Condemned by SEC Chairman (Update 1)’, New York, Bloomberg, L.P., 8th April 2008, available at: http://www.bloomberg.com (Internet), page 1.
17. Westbrook, op. cit.,, page 1.
18. Westbrook, op. cit., page 2.
19. Westbrook, op. cit., page 2.
20. Westbrook, op. cit., page 1.
21. Steve Strecklow, ‘Subprime Lender’s Failure Sparks Lawsuit Against Wall Street Banks’,
The Wall Street Journal, 9th April 2008, Section A, page 1.
22. Strecklow, op. cit., page A1.
23. Strecklow, op. cit., page A14.
24. Strecklow, op. cit., page A14.
25. Strecklow, op. cit., page A14.
26. Strecklow, op. cit., page A14.
27. Aaron Lucchetti and Gregory Meyer, ‘Dual Traders Under Fire’, The Wall Street Journal,
9th April 2008, Section C, page 1.
28. Lucchetti and Meyer, op. cit., page C18.
29. Lucchetti and Meyer, op. cit., page C1.
30. Lucchetti and Meyer, op. cit., page C18.
31. Lucchetti and Meyer, op. cit., page C18.
32. Lucchetti and Meyer, op. cit., page C18.
33. The seven new agencies recommended by the President’s Working Group on Financial Markets, which of course obfuscate the regulatory environment out to infinity, with intent, are: Mortgage Origination Commission; Market Stability Regulator; Prudential Financial Regulatory Agency; Government-Sponsored Enterprises Regulator; Conduct of Business Regulatory Agency; Federal Insurance Guarantee Corporation; and: Corporate Finance Regulator.
34. The one dimension of Mr Cottrell’s practical reforms that will require an appropriate lead-time concerns the recruitment of the necessary trained and licensed management and field compliance personnel for the new Office of the Inspector General for Financial Markets Compliance (OFMC).
In addition to the need to remunerate such expert personnel sufficiently well not least in order to minimise the temptation to succumb to bribery (which has bedeviled enforcement of late), financial compensation must reflect the expertise of recruited staff and the exceptional importance of their responsibilities. At the same time, it will not be necessary to recruit a large compliance staff. A tight ship is recommended, given that a modest staff can be motivated to higher levels of achievement, especially since the recommended ethos would be one of sober determination to stamp out market abuses and corruption generally. Despite the ravages inflicted by the permissive financial market environment in recent years, it is believed that the pool of such qualified experts who are keen to enforce the Rule of Law in the United States remains of sizeable proportions.
GLOSSARY OF U.S. FINANCIAL MARKET DEFINITIONS
References only entries specifically germane to the market issues purportedly addressed by the President’s Working Group on Financial Markets, and relevant to Mr Cottrell’s alternative proposal:
• Annunzio-Wylie Anti-Money Laundering Act of 1992:
This legislation enlarged the definition of ‘financial transaction’, and made money-transmitting, without reporting, a crime. Source: Howard Abadinsky, ‘Organized Crime’, 6th Edition, Belmont: Wadsworth/ Thompson Learning, Inc., 2000, page 411.
• Anti-Drug Abuse Act of 1988:
This law detailed undercover operations involving money-laundering. Source: John Madinger and Sydney A. Zalopany, ‘Money Laundering: A Guide for Criminal Investigators’, New York: CRC Press, LLC, 1999, page 43.
• Anti-Trust Laws:
US Federal legislation designed to prevent monopolies, cartelisation and restraint of trade. Landmark statutes include:
(1): Sherman Anti-Trust Act of 1890, which prohibited actions or contracts tending to create a monopoly and initiated an era of trust-busting;
(2): Clayton Anti-Trust Act of 1914, passed as an amendment to the Sherman Act, which dealt with local price discrimination, interlocking directorates, holding company activities and restraint of trade; and:
(3): Federal Trade Commission Act of 1914, which created the Federal Trade Commission (FTC), with the power to conduct investigations and the power to issue orders preventing unfair practices in interstate commerce. Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Ed., Happauge: Barron’s Educational Series, 2006, s.v. ‘Antitrust Laws’.
See Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA).
• Bank Holding Company Act of 1956:
This act brought, for the first time, holding companies under the banking regulations, and provided that the holding company was subject to the same regulation and examinations as member banks. A Holding Company is a company that exercises control over another via voting shares. Organisation as a holding company allows a banking firm to engage in other non-deposit taking activities, such as discount brokerage operations, securities underwriting, and general public or industrial leasing.
Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science, The Administration of Justice Department, Mercyhurst College, Erie, PA 13th February 2002; Munn, ‘Encyclopedia of Banking and Finance’, page 84; Fitch, Dictionary of Banking Terms, page 225. See: Financial Holding Company.
• Bank Holding Company Act Amendments of 1970:
This legislation expanded the Bank Holding Company Act of 1956 by legislating for a new Holding Company that controls only one bank, and limiting the permissible activities of these entities to those ‘closely related to banking’. The effect of these amendments was to permit one-bank holding companies, such as Bank of New York Company, Inc., to become conglomerates with subsidiaries in non-banking fields without regulation. Sources: Mr Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, op. cit., thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science, Administration of Justice Department, Mercyhurst College, Erie, PA, on 13th February 2002; Munn, ‘Encyclopedia of Banking and Finance’, page 87; Thomas A. Eder, Thompson Desktop Financial Directory, Volume 3, Skokie: Thompson Financial Publishing, Inc., 1993, page 252. See: Financial Holding Company.
• Banking Act of 1935:
This legislation implemented changes to the Federal Reserve Board, prohibiting any banker from serving on the Board of Directors, or being an officer or employee, of more than two institutions. Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science, The Administration of Justice Department, Mercyhurst College, Erie, PA, 13th February 2002; Munn, ‘Encyclopedia of Banking and Finance’, page 89. See: Financial Holding Company.
• Bank Secrecy Act of 1970:
This legislation, the formal title of which is the Currency and Foreign Transactions Reporting Act of 1970, extended to the Secretary of the US Treasury great flexibility in respect of official definitions of ‘monetary instruments’, which could now all of a sudden include ‘coins and currency of a foreign country, travelers’ checks, bearer negotiable instruments, bearer investment securities, stock on which title is passed on delivery’. The ostensible intention of this law was to deter criminal activity in order to assist criminal investigations by requiring all financial institutions to report large cash transactions and the transportation of such instruments initially exceeding $5,000, (now, amounts that in excess of $10,000). Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science, The Administration of Justice Department, Mercyhurst College, Erie, PA, 13th February 2002; See also Munn, ‘Encyclopedia of Banking and Finance’, p.109; John Madinger, Sydney A. Zalopany, ‘Money Laundering: A Guide for Criminal Investigators’, New York, CRC Press, LLC, 1999, page 43.
The Bank for International Settlements (BIS), located in Basel, Switzerland, has established and provides the Secretariat for the Basel Committee on Banking Supervision, which consists of senior representatives of bank supervisory authorities and central banks from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, Netherlands, Spain, Sweden, Switzerland, the United Kingdom and the United States. Basel-II is the comprehensive updated and agreed version of ‘International Convergence of Capital Management and Capital Standards’ revising the 1988, 1996 and 2005 texts to secure an international standard on revisions to supervisory regulations governing the capital adequacy of internationally active banks. Source. and for further information: Basel Committee on Banking Supervision, ‘International Convergence of Capital Measurement and Capital Standards’, Basel, Press & Communications, 2004, available at: http://www.bis.org (Internet).
• Bucket Shop:
An illegal brokerage firm which accepts orders from customers but does not execute them right away, as Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) regulations require. Bucket shop brokers confirm the price that the customer asked for, but in fact make the trade at a time considered to be advantageous to the broker, whose profit is the difference between the two prices. Sometimes bucket shops neglect to fill the customer’s order and just pocket the money. Main source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Bucket Shop’.
• Clayton Anti-Trust Act of 1914:
This law was passed in order to increase competition in business, by restricting the corporate activity of acquiring other competing corporations or the practice of interlocking directorships. Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science, The Administration of Justice Department, Mercyhurst College, Erie, PA, 13th February 2002; additionally: Jack C Plano and Milton Greenberg, ‘The American Political Dictionary’, 4th Edition, Hinsdale, The Dryden Press, 1976, page 328. See: Anti-Trust Laws.
(a): In banking: Collection of funds on which a cheque (check) is drawn, and payment of these funds to the holder of the check.
(b): In the securities sector: Comparison of the details of a transaction between brokers prior to settlement; final exchange of securities for cash on delivery. Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Clear’.
• Commodity Futures Trading Commission (CTFC):
An independent agency created by Congress in 1974 which is responsible for regulating the US commodity futures and options markets. The CFTC is responsible for ensuring the integrity of the commodity futures and options markets everywhere, and for protecting market participants against manipulation, abusive trade practices, and fraudulent operations. Primary source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘CFTC’.
• Commodity Futures Contract:
A Futures Contract that is tied to the price movements of a particular commodity. This arrangement enables contract buyers to purchase a specific amount of a listed commodity at a specified price on a particular date in the future. The price of the contract in question is determined using the ‘open outcry’ system on the floor of a US commodity exchange such as the Chicago Board of Trade or the Commodity Exchange in New York. Commodity Futures Contracts are typically based upon (a) meats (cattle and pork bellies); (b) grains (corn, oats, soybeans and wheat); (c) key metals (gold, silver and platinum); and energy products (heating oil, natural gas, and crude oil). Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Commodity Futures Contract’.
• Commercial Bank:
A State or National Bank owned by stockholders that accepts demand deposits, makes commercial and industrial loans, and performs other banking services for the public. The phrase Full Service Bank covers banks that, as is the case with many commercial banks, supply trust services, foreign exchange, trade financing and international banking services. Source: Thomas P. Fitch, ‘Dictionary of Banking Terms’, 3rd Ed., Happauge: Barron’s Educational Series, Inc., 1997, c.v. ‘Comm. Bank’.
• Compliance Department:
A department typically established by brokers and all US organised stock exchanges to oversee market activity and make sure that trading and other activities comply (in the United States) with Securities and Exchange Commission (SEC) and specific Exchange regulations. A company that does not adhere to the rules can be delisted. And a trader or brokerage firm that violates the rules can be barred from trading. Main source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Compliance Department’.
• Compliance Examination:
Periodic bank examination by a Federal regulatory agency to ensure compliance with consumer protection regulations, such as the Community Reinvestment Act, the Equal Credit Opportunity Act and the Truth in Lending Act. Financial institutions are required by law to issue reports at regular intervals – for example, an annual statement of their mortgage lending in the lender’s market area. Compliance examinations are intended to uncover any hidden violations of consumer protection regulations so that remedial action can be taken. Source: Thomas P. Fitch, ‘Dictionary of Banking Terms’, 3rd Ed., Happauge: Barron’s Educational Series, Inc., 1997, c.v. ‘Compliance Examination’.
•Consumer Credit Protection Act of 1968: See: Truth in Lending Act.
• Criminalism: A new word invented by the Editor of this service, meaning the perpetration and exploitation of organised criminal operations in the interests of political strategy and/or one or more secret agendas; noun, ‘criminalist’, an operative or other cadre who engages in criminalist activities and assumes that he is protected and can therefore continue such activities beyond and above the reach of the Rule of Law. The Editor first used this word in the context of Soviet criminal operations, as exposed in Soviet Analyst, and has since extended it to cover the American variant.
• Currency and Foreign Transactions Reporting Act of 1970: See: Bank Secrecy Act.
A certificate or bond acknowledging a debt on which fixed interest is being paid. Source: Oxford Senior Dictionary, Oxford University Press, 1984.
• Depository Institutional Deregulation and Monetary Control Act of 1980:
This law gave the Federal Reserve Board tighter control over monetary policy. It also required the Fed to assign examiners to examine foreign operations of State member banks, and prohibited the Fed from rejecting any application from a one-bank holding company on the basis of a stock loan, unless that applicant’s financial arrangements were deemed to be unsatisfactory. The applications were to be judged on a case-by-case basis. The Act further proclaimed that collateral was no longer required to support Federal Reserve notes held in the vaults of the Federal Reserve banks, and that the kinds of eligible collateral for Federal Reserve notes were expanded to include those of foreign governments and/or agency or any other ‘asset’ purchasable by Federal Reserve Banks. Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science, The Administration of Justice Department, Mercyhurst College, Erie, PA, 13th February 2002; Munn, ‘Encyclopedia of Banking and Finance’, pages 252 and 253.
• Derivative Instrument (Derivative):
A contract the value of which is determined from publicly traded securities, interest rates, currency exchange rates, or market indices. Derivative Contracts are often ostensibly used for the purpose of ‘protecting’ assets against changes in value. Types of derivatives include the following:
(1): Over-the-counter derivative ‘products’, such as currency swaps and interest rate swaps, which are privately negotiated bilateral agreements, transacted OFF the organised US exchanges. In the currency markets, forward delivery contracts allow traders to lock in current prices when buying and selling baskets of currencies for future delivery.
(2): Derivative securities: Bond-like securities created when pools of loans and mortgages are packaged and sold to investors. In the hands of knowledgeable users, derivative contracts have many applications in the floating interest environment, such as managing currency and interest rate risk, or locking financing costs in by swapping floating rate debt for fixed-rate debt.
Derivatives gained public notoriety in the 1990s when a number of corporations and municipalities embarked upon the use of derivatives for speculative purposes (known as ‘taking a view on the market’), and suffered large losses when interest rates moved against them. Source: Thomas P. Fitch, ‘Dictionary of Banking Terms’, 3rd Edition, Happauge: Barron’s Educational Series, Inc., 1997, c.v. ‘Derivative’.
Release by listed companies of all information, both positive and negative, that might bear on an investment decision, as required by the Securities and Exchange Commission (SEC) and the stock exchanges. Source: Thomas P. Fitch, ‘Dictionary of Banking Terms’, 3rd Edition, Happauge: Barron’s Educational Series, Inc., 1997, c.v. ‘Compliance Examination’.
• Edge Act:
Passed in December 1919, the Edge Act, under the heading ‘Banking Corporations Authorized to Do Foreign Banking Business’, permitted the establishment of foreign banking corporations that aided in the financing of foreign trade. This allowed US banks to establish branches in foreign countries to accommodate American corporations engaged in foreign trade transactions. Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, his thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science (M.S.), The Administration of Justice Department, Mercyhurst College, 13th February 2002; Munn, ‘Encyclopedia of Banking and Finance’, page 289.
• Equal Credit Opportunity Act of 1974:
Monitored by the Federal Trade Commission (FTA), this legislation seeks to ensure that all US consumers are given an equal chance to obtain credit. The Act prohibits discrimination in the granting of credit on the basis of race, colour, religion, national origin, sex, marital status, age, receipt of income from any public assistance scheme, and good faith exercise of any rights under consumer protection legislation. The US Department of Justice may file a lawsuit under the Act where a pattern or practice of discrimination appears to exist. For further information, see: http://www.usdoj.gov/crt/housing/housing_ecoa.htm (Internet).
• Emergency Banking Relief Act:
Passed on 9th March 1933, this Act was triggered following the national liquidity crisis that followed the stock market crash of 29th October 1929 and the extended ‘bank holiday’ of the 4th-12th March 1933. The bank holiday closed all banks nation-wide for one week by order of President Franklin D Roosevelt, to control the wave of banking failures and to restore confidence in the United States’ battered banking system. This legislation permitted banks to issue new stock, with the new stock exempt from subjecting the holder to be liable for the bank’s previously issued stock. The Act also authorised the issuance of US Federal Reserve Bank notes that were redeemable in lawful money in the United States, as 100% obligations of the Federal Government. Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science, Administration of Justice Department, at Mercyhurst College, Erie, PA, 13th February 2002; Moore, ‘The Federal Reserve System’, pages 81-82; Fitch, ‘Dictionary of Banking Terms’, pages 46 and 83.
• Enronisation: A new word coined by the Editor of this service, meaning ‘hollowing out’. Verb: ‘to enronise’; noun: ‘enronist’, a financial criminal who ‘hollows out’ a targeted entity. The essence of the destruction of Enron was that executives and directors formed private partnerships and stole or diverted financial assets or proceeds from the corporation into offshore bank accounts of the partnerships. These diverted monies were then systematically leveraged and hypothecated into high-yield investment and other programs which wound up being far more profitable than Enron itself. Such illegitimate financial arrangements proliferated, so that the original enterprise, Enron, was ‘hollowed out’, while the illicit partnerships prospered, with 100% of the proceeds being held undeclared and untaxed offshore. ‘Enronisation’ strategies are applied not only to companies, but also to whole countries (e.g., Ireland, Zimbabwe, Iceland, probably also Spain (forthcoming)).
• Federal Reserve Act of 1913:
The purpose of this legislation, according to the precise language of the Act, was ‘to provide for the establishment of US Federal Reserve Banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States and for other purposes’. The Act established two basic structures:
(1): A central body known as the Federal Reserve Board; and:
(2): Not more than 12 Reserve banks located throughout the country. The Federal Reserve Board is comprised of seven members appointed by the President of the United States and confirmed by the US Senate for 14-year terms. Sources: Mr Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, his thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science, Administration of Justice Department, Mercyhurst College, Erie, PA, on 13th February 2002 Carl H. Moore, The Federal Reserve System, Jefferson: McFarland & Company, Inc., 1990, page 7; Fitch, Dictionary of Banking Terms, page 46.
• Federal Trade Commission Act of 1914:
This legislation established the Federal Trade Commission as the ‘watchdog of competition’, and as a comprehensive regulatory authority empowered to protect the consumer against ‘unfair methods of competition’. Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, the thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science (M.S.), for The Administration of Justice Department, Mercyhurst College, Erie, PA, 13th February 2002; See also: Munn, ‘Encyclopedia of Banking and Finance’, page 383. See: Anti-Trust Laws.
• Financial Future:
A Futures Contract based upon (relating to) a financial instrument. Such contracts usually move under the influence of interest rates: as interest rates rise, contracts fall in value; as rates decline, contracts gain in value. Examples include: Treasury Bills, Treasury Notes, GNMA Pass-Throughs, foreign currencies, and Certificates of Deposit (CDs). Main source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Ed., Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Financial Future’.
• Financial Guarantee:
A non-cancellable indemnity bond guaranteeing the timely payment of principal and interest due on securities by the maturity date. If the issuer defaults, the insurer will pay out a fixed sum of money to holders of the securities. Financial guarantees are further written by banks which are allowed to operate in the insurance business by the Garn-St Germain Act of 1982, which prohibited banks from entering the insurance business. Insurance companies selling bond insurance must be monoline underwriters, a status which precludes their direct ownership by property and casualty insurance corporations. Source: Thomas P. Fitch, ‘Dictionary of Banking Terms’, 3rd Edition, Happauge: Barron’s Educational Series, Inc., 1997, c.v. ‘Financial Guarantee’
• Financial Holding Company: The Bank Holding Company Act of 1956 prohibited any affiliations between banks and insurance companies (referred to as ‘firewall restrictions’). A Bank Holding Company qualifies as a Financial Holding Company if:
(1): Its banking subsidiaries are ‘well capitalised’ and ‘well managed’; and:
(2): It files with the Federal Reserve Board a certification to such effect and a declaration that it elects to become a Financial Holding Company.
Securities firms and insurance companies must undergo a two-stage process: first, they must qualify as Bank Holding companies under the 1956 Act; and secondly they must then qualify as Financial Holding Companies. Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Financial Holding Company’.
• Financial Industry Regulatory Authority (FINRA): FINRA was brought into existence in July 2007 through consolidation of the National Association of Securities Dealers (NASD) and NYSE Member Regulation. It is the largest US non-governmental regulator and covers all securities firms doing business in the United States. FINRA oversees nearly 5,000 brokerage firms, about 172,000 branch offices and more than 676,000 registered securities representatives. Source: Financial Regulatory Authority, corporate information ‘About FINRA’: copyright 2008 FINRA; this document is available from: http://www.finra.org (Internet).
• Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA):
Enacted on 9th August 1989, this legislation addressed the crisis affecting the Savings and Loan Associations (‘thrifts’) after the sector had been ‘enronised’ by the criminalist kleptocracy headed by George H. W. Bush Sr. Also known as the Bailout Bill, this legislation revamped the regulatory, insurance and financing structures, establishing the Office of Thrift Supervision. It created:
(1): The Resolution Trust Corporation (RTC) which, operating under the management of the Federal Deposit Insurance Corporation (FDIC), was charged with closing or merging institutions which had become insolvent and would be becoming insolvent in the future;
(2): The Resolution Funding Corporation (a.k.a. REFCORP), which was charged with borrowing from private capital markets to fund the RTC’s operations to manage the remaining assets and liabilities that had been taken over/assumed by the Federal Savings and Loan Insurance Corporation (FSLIC), a Government-Sponsored Enterprise (GSE), prior to 1989;
(3): The Savings Association Insurance Fund (SAIF), which was to replace the FSLIC as the insurer of ‘thrift’ deposits and would henceforth be administered by the FDIC separately from its bank deposit insurance programme, which then became the Bank Insurance Fund (BIF); and:
(4): The Federal Housing Finance Board (FHFB), which was charged with overseeing the Federal Home Loan Banks.
• The Resolution Trust Corporation was authorised to accept additional insolvent institutions up to June 1995, after which date responsibilities for the handling of newly failed institutions was shifted to SAIF. This typically convoluted mishmash of arrangements successfully (up to a point) masked and obfuscated the reality, which was that the Savings and Loans Associations (S & Ls) had been systematically scammed and ‘enronised’ by the organised kleptocracy, this being the model for the kleptocracy’s subsequent systematic attacks on the US financial bedrock.
• The overall strategy here was to allow the scandal to escalate to the point where Congressional action became mandatory, whereupon Congress was pressurised to establish institutions that the insiders could then exploit – in this case, to buy up vast portfolios of land and assets for cents on the US dollar, which were then used as collateral for borrowings that were in turn leveraged and hypothecated into high-yield trading programmes for the benefit of the corrupt insider community.
Source for technical information (not the commentary):
John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIERRA)’.
• Financial Institutions Regulatory Act of 1978 prohibits management interlocks by banks operating in the same Metropolitan Statistical Area (MSA). However it exempts the smaller banks, and permits interlocks of up to 49% of a bank’s management officers. See also entry: Interlocking Directorates. Source: Thomas P. Fitch, ‘Dictionary of Banking Terms’, 3rd Edition, Happauge: Barron’s Educational Series, Inc., 1997, c.v. ‘Interlocking Directorates’.
• Financial Operations Officer, of a Securities firm: The financial Operations Officer of a securities firm is equally responsible with the Registered Principal [see Principal, of a Securities firm], for the firm’s financial reports to the SEC and the NASD, for the accurate record-keeping of the firm’s Net Capital Account, and for all trades and customer accounts and correspondence, advertising, and sale literature issued by the company. The Financial Operations Officer must also pass the Series 27 (Financial and Operations Principal) as well as the Series 7 (General Securities Representative) Examinations conducted by the NASD; and must further pass written procedures and oral interview prior to assuming this position with the firm. Source: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, the thesis he submitted in partial fulfillment of the requirements for the Degree of Master of Science, The Administration of Justice Department, Mercyhurst College, Erie, PA, on 13th February 2002; NASD, ‘National Association of Securities Dealers, Inc.: Manual’, April 1998, page 3171; NASD, ‘NASD Compliance Check List’.
• Financial Services Modernization Act (FSMA) of 1999, also known as the Gramm-Leach-Bliley Act: This Act repealed parts of the Glass-Steagall Act of 1933 and the Bank Holding Company Act of 1956. It permits commercial banks, merchant banks, securities firms and insurers to affiliate through the structure called the Financial Holding Company. Under the Act, Nationally (Federally) Chartered Banks are permitted to engage in most financial activities through Direct Subsidiaries. The FSMA permitted Financial Holding Companies to:
4: Invest for others;
5: Safeguard money or securities (custodial services);
6: Engage in insurance activities, including insuring and acting as principal, agent, or broker for all types of insurance (including health), and providing financial advice (including the provision of financial advice to investment companies);
7: Issue or sell instruments representing interests in pools of assets that are permissible for a bank to hold indirectly;
8: Underwrite, deal in, or make a market in securities with no limitation as to revenue;
9: Engage in activities outside the United States;
10: Be seized of the following (text is verbatim here): ‘The Federal Reserve Board has determined to be usual in connection with the transaction of banking or other financial operations abroad’.
Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. under: ‘Financial Services Modernization Act’.
• FinCEN [Financial Crimes Enforcement Network] is a bureau of the US Treasury which collects and analyses information about financial transactions in order to combat money laundering, the financing of terrorism, and other financial crimes and fraudulent finance. In line with the double-mindedness which characterises the kakocracy, almost all the senior criminalist figures identified in our reports have themselves been engaged in financing terrorism on a colossal scale.
Created in 1990, FinCEN seeks to realise the potential of critical information-sharing among law enforcement agencies and its other partners in the regulatory and financial communities. While the Financial Crimes Enforcement Network’s task is to safeguard the US financial system from abuses associated with financial crime, including the financing of terrorism, money laundering and other illicit activities, it does nothing the curb the excesses of the criminalists holding high office, who assume that the privileges and power of their offices, together with their prolific use of the ‘Black Arts’ of bribery and blackmail, protect them from the consequences of their actions.
While, therefore, FinCEN’s publicity presupposes that it thinks it is doing a good job, the record inter alia of our reports suggests the reverse. FinCEN was established by order of the Treasury Secretary (Treasury Order Numbered 105-08) on 25th April 1990. In May 1994, its responsibilities were broadened to include regulatory responsibilities, and the US Treasury’s Office of Financial Enforcement (OFE) was merged with FinCEN in October 1994. On 26th September 2002, after the passage of Title III of the USA Patriot Act, Treasury Order Numbered 180-01  made FinCEN an official bureau within the Department of the Treasury.
Under Section 314(a) of the USA Patriot Act of 2001, Federal law enforcement agencies, through FinCEN, are empowered to reach out to more than 45,000 points of contact at over 27,000 financial institutions to locate bank accounts and transactions by persons that may be involved in terrorist financing and/or money laundering. This cooperative partnership between the financial community and law enforcement allows disparate items of information to be identified, centralised, and rapidly evaluated. FinCEN has its headquarters in Vienna, VA. See: www.fincen.gov [Internet].
• Full Disclosure: Public information requirements established by the Securities Act of 1933, the Securities Act of 1934, and the major US stock exchanges. Source: John Downes and Jordan Elliot Goodman, see their ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Full Disclosure’.
• Garn-St Germain Depository Institutions Act of 1982: This Federal law was enacted in 1982, and authorised banks and savings institutions to offer a new type of account, known as the Money Market Deposit Account, which is a transaction account with no interest rate ceiling, to compete more effectively with money market mutual funds. The legislation also gave the Savings and Loan Associations the authority to extend commercial loans; and it gave Federal regulatory agencies the authority to approve, for the first time, interstate acquisitions of failed institutions and also savings institutions. Thus, the Act effectively created the environment for the subsequent enronisation of the Savings and Loan Associations, providing inter alia that:
(1): Savings and Loan Associations were authorised to extend commercial, corporate, business or agricultural loans up to 10% of assets after 1st January 1984;
(2): The deposit interest differential, allowing Savings and Loans and Savings Banks to offer rates on interest-bearing deposit accounts that were 0.25 of 1% higher than commercial banks, was lifted, as of January 1984;
(3): The Act authorised a new capital assistance program, the Net Worth Certificate Program, under which the US Federal Savings and Loan Insurance Corporation and the Federal Deposit Insurance Corporation would be able to purchase novel capital instruments called Net Worth Certificates from savings institutions with net worth-to-assets ratios of under 3%, and would subsequently redeem the certificates as they regained financial health;
(4): The Act permitted Savings and Loan Associations to offer checking accounts (demand deposit accounts) to individuals and business checking accounts to customers who had other accounts;
(5): Savings and Loans were authorised to increase their consumer lending from 20% to 30% of assets, and to expand their dealer lending and floor-plan loan financing;
(6): The Act raised the ceiling on direct investments by savings institutions in nonresidential real estate from 20% to 40% of assets, and also allowed investment of 10% of assets in education loans for any educational purpose, and up to 100% of assets in state and municipal bonds;
(7): The Act pre-empted State restrictions on enforcement by lenders of due-on-sale clauses in most mortgages for a three-year period ending on 15th October 1985, and further authorised State chartered lenders to offer the same kind of alternative mortgage deals that nationally chartered financial institutions were allowed to offer (opening the door to what became the ‘sub-prime’ crisis;
(8): The Act authorised the Comptroller of the Currency to charter Bankers’ Banks, or depository institutions owned by other banks;
(9): It made State chartered industrial banks eligible for Federal deposit insurance; and:
(10): It raised the legal lending limit for National Banks from 10% to 15% of their capital and surplus.
Source: Thomas P. Fitch, ‘Dictionary of Banking Terms’, 3rd Edition, Happauge: Barron’s Educational Series, Inc., 1997, c.v. ‘Garn-St. Germain Depository Institutions Act’. See also: Financial Guarantee; Savings and Loan Deregulation.
• Glass-Steagall Act of 1933:
Legislation passed by Congress which:
(1): Authorised deposit insurance;
(2): Prohibited commercial banks from owning full-service brokerages (Securities Houses of Broker/Dealers);
(3): Prohibited banks from undertaking investment banking activities, for instance underwriting corporate securities or municipal revenue bonds;
(4): Was framed to insulate bank depositors from the risk involved when a bank deals in securities, in order to prevent banks from collapsing.
The Glass-Steagall Act was disabled by the Financial Services Modernization Act (a.k.a. the Gramm-Leach-Bliley Act, a.k.a. the Financial Services Modernisation Act). Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Glass-Steagall Act’.
• Gramm-Leach-Bliley Act of 1999:
See: Financial Services Modernization Act; Glass-Steagall Act of 1933.
• Guarantee: This entails the acceptance of responsibility for payment of a debt or for performance of some obligation if the person (entity) primarily liable fails to perform. The guarantor acquires a Contingent liability – namely, a potential liability that is not going to be recognised in accounts until the outcome becomes probable in the opinion of the company’s accountant. Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Guarantee’.
• Guaranteed Bond: A Bond that is characterised by the fact that the principal and interest are guaranteed by a firm other than the issuer. Both guaranteed stock and guaranteed bonds become, in effect, debenture (unsecured) bonds of the guarantor. Source: John Downes and Jordan Elliot Goodman, see: ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Guaranteed Bond’.
• High-Yield Investment Program:
A sophisticated scam perpetrated in many instances by corrupt elements of US intelligence and associates, masterminded inter alia by the arch-criminalist George H. W. Bush Sr. and his corrupt co-conspirator, Dr Alan Greenspan, the former Chairman of the Federal Reserve Board. Due to overuse of this term by the corrupt operators, it has become more or less synonymous with the generic term ‘fraudulent finance’, and with Ponzi and Pyramid Schemes (known as ‘pyramid-selling schemes’ in Britain). Experts are divided as to whether most High-Yield Investment Programs are Ponzi schemes, or not. Our own investigations suggest that colossal sums of stolen and duplicated funds (as explained in the Wantagate reports) were also used in these schemes, with stolen money being employed as purported back-up for promised and actual initial payouts. However these were never intended to occur beyond the first and perhaps the second layers, as the fraudulent finance techniques were used to entice retail investors into parting permanently with their funds, often after signing illegal Non-Disclosure Agreements.
High-yield investment programs were/are able to collect large amounts of money for the criminalist operators because initial payoffs to first and second round participants (financed from the stolen money in the case of the giga-scams presided over inter alia by the aforementioned master crooks) gave the scams momentum by spreading news of the sizeable initial payments by word of mouth – a situation that prevails as long as new participants can be found and/or old participants are foolish enough to leave their money in the schemes in the hope of gaining high rolled-up interest on their initial investments. Participants are usually attracted by some form of an appeal to emotion or faith that the program will help them to achieve rapid financial freedom. High-Yield Investment Programs may also mirror pyramid-selling schemes by offering current investors incentive commissions, for instance, 9% of investment by the participant on top of promised accruals, to recruit new investors.
Notorious documented High-Yield Investment Programs include:
(1): OSGold, founded as an e-gold ‘imitation’ in 2001 by David Reed, It folded in 2002. According to a lawsuit filed in US District Court in 2005, operators of OSGold may have made off with $230 million.
(2): The second largest documented High-Yield Investment Program was PIPS (People In Profit System), or Pure Investors. Started by Bryan Marsden in 2004, this scheme spanned more than 20 countries. PIPS was investigated by Bank Negara Malaysia in 2005, resulting in Marsden and his wife being charged in a Malaysian Court with some 97 counts of money laundering more than 77 Malaysian ringgit, equivalent to $20 million [New Straits Times, 11th October 2006]. Yet even after these charges were brought, many of Marsden’s followers continued to support him and to believe that they would be seeing their money in future. A similar rationalisation and denial syndrome can be observed in many other High-Yield Investment Program contexts.
(3): Indicted operators or schemes under investigation:
12DailyPro Autosurf (United States: Securities and Exchange Commission); Ginsystem, Inc. (Singapore: Commercial Affairs Department of Singapore); IT4US (United States); PlexPlay (Norway: HegnarOnline, in Norwegian); Solidinvestment (United States).
The foregoing provides merely a preliminary outline of the background to these scams, concerning which a considerable literature now exists. Promoting or perpetuating Ponzi schemes is a criminal offence punishable by jail terms or fines in most countries. The fact that the High-Yield Investment Program monitoring websites publicise disclaimers to the effect that the sites ‘do not promote the programs advertised’ on their websites, does not absolve the operators from criminal liability.
A disturbing feature of this environment is that a large number of High-Yield Investment Program participants persist in participating in further schemes long after they have already lost money in schemes that have either folded, or in respect of which the operator has disappeared. The fact that most of the publicised schemes are openly labelled scams on the relevant Internet monitor boards, even though their operators are themselves criminally liable, suggests that many participants are well aware of the risks they are running, know that the schemes are fraudulent, but choose to put money in them anyway, like addicted gamblers.
Former officials and members of the US armed forces may have been taken in by indications that the operators were officially connected or even that the scams in which they have participated were legitimate because of such alleged connections, including intelligence backgrounds.
The perpetrators play on the understandable anger felt by those who have been scammed, even though they were originally enticed by the US perpetrators into becoming prospectively felonious participants themselves, a condition which leads psychologically to the state of denial that in turn supposedly provides the perpetrators with the protection that they require.
However the operators, sitting on their stolen funds, may well fear the ultimate outcome, should manipulation of the expectations of the scammed investors cease to remain perversely ‘credible’, or those manipulative counterintelligence Psy-Ops initiatives are closed down.
Originally a pledge of property as collateral for indebtedness without transfer of possession to the party extending the loan. This arrangement is common in the case of mortgages. The borrower retains legal ownership of the property but provides the lender with a lien over the property until the debt is paid off. Rehypothecation occurs when a broker pledges hypothecated client-owned securities in a margin account to secure a bank loan.
The fraudulent finance buried inside the ‘sub-prime’ mortgage nexus of scandals was explained in our report dated 26th December 2007 [www.worldreports.org: Archive]. As described in that report, the ‘homeowner’ has been scammed, either he or she has been coerced into signing several top copies of the same document, enabling the lending bank to claim ownership even though the bank has sold the mortgage on the basis of another top copy, for instance, to one of the co-conspiring Government-Sponsored Enterprises; or because the bank has alienated its ownership of the loan to the GSE in question, or has packaged the mortgage with other loans, as well as with worthless securities underpinned by no real asset, and has sold such packages on to parties (usually abroad) which have not performed due diligence.
In our report of 26th December 2007, we advised ALL US ‘homeowners’ facing foreclosure to let the Court know that the underlying contract has been requested from the bank. In most instances, the bank will be unable to supply it, because it has sold on the mortgage to the GSE, having therefore already passed on the risk. People facing foreclosure who ask for the contract can usually expect to be pleasantly surprised at the outcome of their cases.
• Internal Revenue Service (IRS):
The IRS is part of the US Treasury Department, and was officially created by Act of Congress on 1st July 1962. The IRS is responsible for administering and enforcing the Internal Revenue Code (IRC), as established under US Congressional authority, passed in 1913, to levy taxes on the income of individuals and corporations.
In 1939, the IRC was codified from the separate Internal Revenue laws. The IRS Code was further overhauled in 1954, with substantive new provisions being added concerning depreciation, the double taxation of dividends, research and experimental expenditures, carryback on operating losses, tax on ‘unreasonable’ accumulations of surplus, preferred stock bail-outs, and collapsible corporations and partnerships.
Of the enormous changes to the IRC implemented since 1954, the most important for the context we are dealing with here was the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 which, inter alia, required US taxpayers to report all sources of income, wherever it was earned anywhere in the world. It follows that all receipts received by American taxpayers since the passage of this Act which have not been reported to the Internal Revenue Service are taxable, which means that all US taxpayer holdings in offshore accounts that have not been declared for tax are liable for tax and penalties. Main source: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science, for The Administration of Justice Department, Mercyhurst College, Erie, PA, 13th February 2002; see also: Munn, ‘Encyclopedia of Banking and Finance’, page 589.
• Interlocking Directorates:
These reference commercial banks or savings institutions which have individuals on their Boards of Directors who further serve on the Board or Boards of one or more unaffiliated competitor(s) operating in the same marketplace. The US Financial Institutions Regulatory Act of 1978 prohibits management interlocks by banks operating in the same Metropolitan Statistical Area (MSA). But it exempts smaller banks, and also permits interlocks of up to 49% of a bank’s management officers. Source: Thomas P. Fitch, ‘Dictionary of Banking Terms’, 3rd Edition, Happauge: Barron’s Educational Series, Inc., 1997, c.v. ‘Interlocking Directorates’.
• International Banking Act of 1978:
This legislation essentially places American branches and agencies of foreign banks under the supervision of US bank regulators. The provisions included: authorising the Comptroller of the Currency to license and supervise a foreign bank; authorising Federal bank agencies to examine US offices of any foreign bank; subjecting any foreign bank branch or holding company to the Bank Holding Company Act, just like any US bank holding company; and imposing reserve requirements and Federal deposit insurance coverage for foreign banks to the same extent as the US member banks. Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science, for The Administration of Justice Department, Mercyhurst College, Erie, PA, 13th February 2002; see: Munn, ‘Encyclopedia of Banking and Finance’, page 563.
• International Banking Act of 1987:
Created a Federal regulatory structure similar to the Federal Reserve to examine the assets and liabilities of foreign banks on-site, and to ensure similar licensing and regulation of non-banking activities of foreign banks. It also required the Federal Reserve to maintain the same competitive equity requirements for foreign banks as for US member banks. Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science, Administration of Justice Department, Mercyhurst College, Erie, PA, 13th February 2002; Munn, ‘Encyclopedia of Banking and Finance’, page 563.
• Investment Banking:
The sale and distribution of a new offering of securities, carried out by a financial intermediary (an investment banker), who purchases securities from the issuer as principal, and assumes the risk of distributing securities to investors. Source: Thomas P. Fitch, ‘Dictionary of Banking Terms’, the 3rd Edition, Happauge: Barron’s Educational Series, Inc., 1997, c.v. ‘Investment Banking’.
• Investment Company Act of 1940:
This Act requires that all companies which offer securities or investment advice to the public must register with the Securities and Exchange Commission. For instance, any advisory corporation that offers investment advice (not straight reporting, but advice) must register with the SEC. For those who may be interested, this explains why this service does not offer advice and will not respond to the frequent requests for financial investment advice that we routinely receive. Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science, for The Administration of Justice Department, Mercyhurst College, 13th February 2002; Munn, ‘Encyclopedia of Banking and Finance’, page 589.
• Kakocracy: Rule by the worst elements of society exclusively in their own interests and with cynical and permanent disregard for the interests of anyone else.
• Kleptocracy: The ascendancy of a rapacious, thieving class of co-conspiratorial bandits protected by public office that is bent on maximising the open-ended potential of their office and power for personal enrichment and for the furtherance of clandestine agendas divorced from the interests of the people and the constituencies they are supposed to serve. This term is used in these reports even though kleptomania is strictly defined in the Oxford Senior Dictionary as ‘an uncontrollable tendency to steal things, with no desire to use or profit by them’.
The definition is interesting, because it reveals an element of madness that is clearly inherent in the behaviour of the criminalist snakes identified in these reports. This madness can be observed in the rapacious behaviour, for instance, of the arch-criminalist DVD godfather, George Bush Sr., whose avarice for other people’s money notoriously knows no bounds, despite his age, indicating that he chooses to remain unaware of his own mortality: a characteristic of greed which can only be described as symptomatic of mental derangement.
• Leverage, Financial and Investment:
(1): Financial Leverage: Debt in relation to equity in a firm’s capital structure (such as long-term debt, preferred stock, and shareholders’ equity. Financial leverage is measured by the debt-to-equity ratio: the more long-term debt there is, the greater the financial leverage.
(2): Investment leverage: A means of enhancing return or value without increasing investment: for instance, by buying securities on margin with borrowed money. Extra leverage may be achievable if the leveraged security is convertible into common stock.
(3): Note: Option contracts provide leverage, with NO borrowings, offering the prospect of high return for little or no investment.
Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Leverage’.
• Maloney Act of 1938: An amendment to the Securities Act of 1933 which created the US National Association of Securities Dealers (NASD). The legislation promoted the organisation of member securities dealers as a Self-Regulating Organizations (SRO) under the supervision of the Securities and Exchange Commission (SEC) to institutionalise a code of ethics in the securities industry and its enforcement nationwide. NASD members are known as Broker/Dealers, since they represent both clients that buy and/or sell securities, and themselves, as a principal, when they are engaged in underwriting and/or selling a stock or bond issue directly to the public. The NASD is the only firm operating under the Maloney Act. See: NASD: National Association of Securities Dealers. Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science, Administration of Justice Department, Mercyhurst College, Erie, PA, 13th February 2002; NASD, ‘National Association of Securities Dealers, Inc.: Manual, April 1998, page 3171.
• Margin Accounts: See Mark to [The] Market and: Margin Requirements
• Margin Requirements:
The minimum amount that a client must deposit in the form of cash or eligible securities in a Margin Account, as is spelled out under Regulation T of the Federal Reserve Board. Regulation T requires a minimum of $2,000 or 50% of the purchase price of eligible securities bought on margin or 50% of the proceeds of short sales. Also referred to as the Initial Margin. Primary source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Margin Requirement’.
• Margin Security:
This is a security that may be bought or sold in a Margin Account. Regulation T of the Federal Reserve Board defines margin securities as:
(1): Any registered security (a listed security or a security having unlisted trading privileges);
(2): Any OTC margin stock or OTC margin bond, which are defined as any unlisted security that the Federal Reserve Board (FRB) periodically identifies as having the investor interest, marketability, disclosure and solid financial position of a listed security;
(3): Any OTC security designated as qualified for trading in the National Market System under a plan approved by the Securities and Exchange Commission;
(4): Any mutual fund or unit investment trust registered under the Investment company Act of 1940. Other securities that are not exempt securities must be transacted in cash. Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Margin Security’.
• Mark to [The] Market:
Adjustment of the valuation of a security or portfolio to reflect current (prevailing) market values. For instance, Margin Accounts are marked to market in order to ensure compliance with financial maintenance requirements. (In UK parlance, the definite article is dropped). Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Mark To The Market’.
• Money laundering:
Passing illegally acquired funds or taxable funds on which no tax has been paid inter alia with the intent to evade tax and to hide the funds from relevant national authorities. American legislation addressing money-laundering includes:
(1): The Bank Secrecy Act of 1970;
(2): The Money Laundering Control Act of 1986;
(3): The anti-Drug Abuse Act of 1988;
(4): The Annunzio-Wylie Money Laundering Act of 1992;
(5): The Money Laundering Suppression Act of 1944; and:
(6): The Terrorism Prevention Act of 1996.
The Money Laundering Control Act of 1986 made money laundering a Federal crime corresponding to the previously passed Organized Crime Control Act of 1970. See separate entries in Glossary.
Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science, The Administration of Justice Department, Mercyhurst College, Erie, PA, 13th February 2002; Munn, Encyclopedia of Banking & Finance, page 109; also: John Madinger and Sydney A. Zalopany, ‘Money Laundering: A Guide for Criminal Investigators’, New York, CEC Press, LLC, 1999, page 43; Howard Abadinsky, ‘Organized Crime’, 6th Edition, Belmont: Wadsworth/Thompson Learning, Inc., 2000, page 411; FINCEN, ‘The Global Fight Against Money Laundering’, Financial Crimes Enforcement Network (FINCEN, 1999, available from: http:// www.occ.treas.gov/launder (Internet).
• Money Laundering Control Act of 1986:
This legislation made money laundering a Federal crime corresponding to the previously passed Organized Crime Control Act of 1970. See: Money laundering.
• Money Laundering Suppression Act of 1994: Legislation which required that ‘any person who owns or controls a money services business’ must register with the Secretary of the Treasury. Source: FINCEN, ‘The Global Fight Against Money Laundering’, Financial Crimes Enforcement Network (FINCEN, 1999, available from: http:// www.occ.treas.gov/launder (Internet).
• Municipal Securities Rulemaking Board (MRSB): See Self-Regulatory Organization (SRO), below.
• NASD: National Association of Securities Dealers:
A non-profit organisation that was formed under the joint sponsorship of the Investment Bankers’ Conference and the US Securities and Exchange Commission (SEC) in order to comply with the requirements of the Maloney Act. NASD Members include virtually all investment banking houses and firms dealing in the Over-the-Counter Market.
Operating under the supervision of the SEC, the basic purposes of the NASD are to:
(1): Standardise practices in the field;
(2): Establish high moral and ethical standards in the securities trading business;
(3): Provide a representative body to consult with the Government and investors on matters of common interest;
(4): Establish and enforce fair and equitable rules of securities trading;
(5): Establish a disciplinary body capable of enforcing the above provisions.
The NASD requires members to maintain ‘quick assets’ in excess of current liabilities at all times.
Within the NASD, a special Investment Companies Department concerns itself with the problems of investment companies and has the responsibility of reviewing companies’ sales literature in that segment of the securities industry.
Michael C. Cottrell, M.S., has described the NASD’s contemporary responsibilities as including the following (to be read in conjunction of the foregoing information):
(1): Nationwide inspections of member firms;
(2): Provision of centralised computerised surveillance of the trading of NASD Automated Quotations, of its sister company NASDAQ;
(3): Enforcement of Securities and Exchange Commission rules and regulations, as well as of its own rules for members;
(4): To review underwriting arrangements for securities offered to the public;
(5): To perform and monitor qualification examinations of personnel of members; and:
(6): To coordinate and cooperate with the SEC, the States and with other Federal agencies.
The responsibilities of the SEC do NOT include trading on own account [see text], a gross abuse of which it has been and continues to be accused. This abuse is inconsistent with its responsibilities as a regulator and is considered by experts to be a scandalous development. See also: Financial Industry Regulator Authority (FINRA). Sources: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘NASD’; Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science, The Administration of Justice Department, Mercyhurst College, Erie, PA, 13th February 2002; Munn, ‘Encyclopedia of Banking & Finance’, page 696.
• National Market System: See: Securities and Exchange Commission (SEC).
• Non-Disclosure agreement:
An illegal document which, if signed by a participant to a transaction, precludes any recourse to official regulators for protection after the participant has predictably been scammed, and likewise precludes any legal recourse.
• Office of the Comptroller of the Currency (OCC):
This is the chief regulator of US National Banks. The Comptroller of the Currency is appointed by the President of the United States for a five-year term, with Senate confirmation. The OCC, the supervisory agency covering nationally chartered banks, is the oldest US Federal regulator of financial institutions. The Comptroller of the Currency also serves as one of the three Directors of the Federal Deposit Insurance Corporation. Source: Thomas P. Fitch, ‘Dictionary of Banking Terms’, 3rd Ed., Happauge: Barron’s Educational Series, 1997, c.v. ‘Comptroller of the Currency’.
• Office of Thrift Supervision (OTS):
This US Federal agency was established under the Financial Institutions Reform, recovery and Enforcement Act of 1989 to examine and supervise Savings and Loan Associations (‘thrifts’) and Federal Savings Banks. It replaced the Federal Home Loan Bank Board as the primary regulator of State chartered and Federally chartered savings institutions. It is a bureau within the US Treasury Department. The Director and Chief Operating Officer (CEO) of OTS is appointed by the President of the United States with Senate confirmation, and is also one of five directors of the Federal Deposit Insurance Corporation (FDIC). The fact that the OTS is structured within the US Department of the Treasury parallels the position with the Office of the Comptroller of the Currency. Source: Thomas P. Fitch, ‘Dictionary of Banking Terms’, 3rd Edition, Happauge: Barron’s Educational Series, Inc., 1997, c.v. ‘Office of Thrift Supervision’.
• ‘Open outcry’:
A non-electronic method of communication between professionals on a stock or futures exchange involving shouting and the use of hand signals to transfer information primarily about buy and sell orders. The component of the trading floor where this takes place is often called the pit. The best-known ‘open outcry’ markets in the United States remain the New York Mercantile Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade, the Chicago Board Options Exchange, and the Minneapolis Grain Exchange. In the United Kingdom, the London Metal Exchange (LME) still makes use of the ‘open outcry’ method. Many traders prefer the ‘open outcry’ system on the basis that physical contact in the pit allows traders to speculate as to the motives or intentions of buyer/seller, so that positions can be adjusted accordingly.
• Organized Crime Control Act of 1970:
See Money Laundering Control Act of 1986; and Money laundering.
(1): Of a security: A security that is not listed and traded on an organised exchange;
(2): Of a market: A market in which securities transactions are conducted through a telephone and computer network connecting dealers in stocks and bonds, rather than, as classically, on the floor of an exchange. Over-the-counter stocks are traditionally those of smaller companies that do not meet the listing requirements of the New York Stock Exchange or the American Stock Exchange.
In recent years, however, many companies that qualify for listing have chosen to remain with Over-the-Counter trading, because they consider that the system of multiple trading by many dealers is preferable to the centralised trading approach of the New York Stock Exchange, where all trading in a stock has to go through the Exchange specialist in that stock. The rules for Over-the-Counter stock trading are written and enforced largely by the US National Association of Securities Dealers (NASD), which is self-regulating (see NASD).
Prices of Over-the-Counter stocks are published in daily newspapers, with the National Market System stocks listed separately from the rest of the Over-the-Counter market. Over-the-Counter markets incorporate markets in both Government and municipal bonds. Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Over-the-Counter (OTC)’.
Pass-Through Securities: Pools of fixed-income securities that are backed by a package of assets. A servicing intermediary collects monthly payments from issuers and, after deducting a fee, remits or passes them through to the holders of the pass-through security. This device is also known as a ‘pass-through certificate’ or a ‘pay-through security’. The most common type of pass-through is a mortgage-backed certificate, whereby ‘homeowners’’ payments pass from the original lending bank through a Government agency or investment bank to the investors (per the supposed model).
• Ponzi Scheme:
A scam designed to entrap the unwary investor, as described in the following analyses published on this website [see Archive) and in International Currency Review:
(1): ‘Treasongate Update: Omega ‘Ponzi Game’ scams, 13th January 2007;
(2): ‘Treasongate Background: Intel Ponzi Scams’, 22nd January 2007.
So-called ‘lending programs’, a.k.a. High-Yield Investment Programs operating along Ponzi or Pyramid Scheme lines promoted clandestinely inter alia by corrupt elements of the criminalist US intelligence community (including the CIA’s OMEGA OPS scams) will comply with none of these stringent regulations and requirements, and are accordingly, by definition, ALL ILLEGAL IN THE UNITED STATES. This may well be the basis upon which non-payment of these accounts has been predicated. The question therefore arises: why have these illegal schemes been so widespread, having given rise to a colossal constituency of the American ‘broken hearted’, who have been scammed in one way or another but who have been clinging to the hope, like Rip van Winkel, that they, their family trusts or their restless associations of ‘the scammed’, will finally be paid out one sunny day far out into the future?
The generic answer to this question is that the cynical, criminalised fraudster élite, headed by the crooks controlling and inside the intelligence community, have taken precautions to instal their own corrupt operatives within and in control of certain enforcement institutions, including the SEC.
Enron and the Federal Deposit Insurance Corporation (FDIC) have been used to proliferate and perpetuate these illegal securities scams: indeed, it is from operations such as the CIA’s nefarious Enron scamming system, that the derivatives overhang and crisis have mainly arisen.
As a consequence, blind US official (Federal and State) eyes have been turned to what has been going on, the securities regulations have not been enforced with respect to such illegal Ponzi frauds, and the old system whereby anyone involved with trading securities was blackballed for life if caught engaged in irregular activities, has been moribund since the 1970s.
When an uncorrupt SEC Commissioner tried, quite recently, to enforce the regulations, he was removed from his post on some typically trumped-up pretext or other. In other words, the wolves are and have been in charge of the chicken coops.
So key enforcers are, as matters stand, co-conspirators in the despicable, hitherto (but since the Wantagate and the subsequent exposures, no longer) proliferating intelligence community-driven Ponzi Game operations that have devastated an unknown number of American families – with the proceeds channelled through corrupt participating banks into offshore accounts. See Appendix to this report for the narrative of the original Ponzi fraud.
(1): The person with highest authority in a business, or a person for whom another acts as an agent.
(2): A capital sum as distinguished from the interest on it.
(3): See also: Principal, of a Securities firm.
Source: Oxford Senior Dictionary, Oxford University Press, 1984.
• Principal, of a Securities firm:
An NASD member firm is directed by a Registered Principal, who can be the sole proprietor, an officer, a partner, a manager of an office of Supervisory Jurisdiction, and/or a Director of the firm.
The Registered Principal is answerable for all actions taken on behalf of the firm, and all trades submitted by the firm, and all actions of its registered representatives, subject to the rules and regulations of the NASD, SEC and the State of registration. The Registered Principal must pass the Series 24 (General Securities Principal) and also the Series 7 (General Securities Representative) Examinations conducted by the NASD, and must pass the written procedures and oral interview before assuming this position for the firm. Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, the thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science, Administration of Justice Department, Mercyhurst College, Erie, PA, on 13th February 2002; NASD, ‘National Association of Securities Dealers, Inc.: Manual’, April 1998, page 3171; NASD, NASD Compliance Check List, Gaithersburg: NASD MediaSource, 1992.
A basic truth or a general law or doctrine used as a basis of reasoning or a guide to action or behaviour; a fundamental truth or doctrine, as of law; a comprehensive rule or doctrine which furnishes a basis or origin for others; a settle of action, procedure or legal determination. Also defined as: a truth so clear that it cannot be proved or contradicted unless by a proposition which is still clearer. Sources: Oxford Senior Dictionary, Oxford University Press, 1984.; Henry Campbell Black, M.A., ‘Black’s Law Dictionary’, Revised 4th Edition, St Paul, West Publishing Company, 1968, s.v., ‘Principle’.
• Prudent Man Rule:
This is the fundamental American principle that is applicable in respect of professional money management, originally asserted by Judge Samuel Putnum in 1830 as follows:
‘Those with responsibility to invest money for others should act with prudence, discretion, intelligence, and regard for the safety of capital as well as income’ [1830 Massachusetts Court decision: Harvard College v. Armory]. The Prudent Man Rule directs trustees ‘to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the management and disposition of their funds, considering the probable income as well as the probable safety of the capital to be invested’. Investments in risky Ponzi and Pyramid Schemes and in ‘programs’ such as those referenced, typically breach the Prudent Man Rule.
• Public Offering Price: See: ‘Underwrite’ below.
• Pyramid Scheme or scam: See: Ponzi Scheme.
• Registered Principal: See: Principal, of a Securities firm.
• Registered Representative, of a Securities firm:
This officer is licensed and authorised to purchase and/or sell stocks, bonds, options, limited partnerships, tax shelters, mutual funds, and variable annuities on behalf of a customer or the firm.
The Registered Representative must have qualified by passing the Series 7 (General Securities Representative) Examination and must be registered with the firm as an authorised representative. Additionally, all licensed representatives must have passed the NASD Series 63 (Uniform State Law) AntiFraud Examination, and must register with each State the firm intends to operate in.
Source: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science, The Administration of Justice Department, Mercyhurst College, Erie, PA, 13th February 2002; NASD, ‘National Association of Securities Dealers, Inc.: Manual’, April 1998, page 3201; NASD, ‘NASD Compliance Check List’.
Uncertainty as to whether an asset will earn an expected rate of return, or whether a loss may occur: Various categories of risk apply in the securities market environment:
(1): Delivery risk: The possibility that the buyer or seller of an instrument or foreign exchange may be unable to meet obligations at maturity.
(2): Liquidity risk: The possibility that a bank may have insufficient cash or short-term marketable assets to meet the needs of depositors and borrowers.
(3): Settlement risk: The possibility that the failure of a major bank, or its inability to honour payment commitments in a wire transfer network, could have a domino effect on other institutions, causing similar failures elsewhere. In the United Kingdom, this is usually referred to as ‘systemic risk’.
Source: Thomas P. Fitch, ‘Dictionary of Banking Terms’, 3rd Edition, Happauge: Barron’s Educational Series, Inc., 1997, s.v. ‘Risk’.
• Risk Free Asset:
A non-callable, default-free bond such as a short-term Government security. While such an asset is not risk-free in terms of inflation, it is (given that the Government can always print money) risk-free in a dollar sense. Source: Jerry M. Rosenberg, ‘The Essential Dictionary of Investing & Finance’, New York, Barnes & Noble, Inc., 2004, s.v. ‘Risk Free Asset’.
• Rule of Law, A (indefinite article):
The way this may be defined in the present context is to begin with the word ‘Rule’. A ‘Rule’ is an established standard, guide or regulation, especially a regulation set up by an official authority. It prescribes or directs action or forbearance. The term also covers a regulation made by a Court of Justice or a public office with reference to the conduct of business therein. Hence, ‘A Rule of Law’ encompasses a legal principle, or a body of legal principles, of general application, sanctioned by the recognition of authorities, and usually expressed in the form of a maxim or logical proposition. The word ‘Rule’ is used because in doubtful or unforeseen circumstances it is a guide or norm for the decision of those concerned (Toullier, tit. Prel. No. 17).
Source: Henry Campbell Black, M.A., ‘Black’s Law Dictionary’, Revised 4th Edition, St Paul, West Publishing Company, 1968, s.v. ‘Rule of Law’.
• Rule of Law, The (definite article): Note that the foregoing diverges from ‘The Rule of Law’. The common interpretation of The Rule of Law is that ‘the Law rules’ or is paramount: in other words that everyone in society, including the Government, operates within the ordered framework of the Law, precluding arbitrary behaviour. It is important to distinguish between the indefinite and the definite article here, because ‘Rule of Law’ has a different meaning, depending on which is used.
• Savings and Loan Deregulation:
The Garn-St Germain Act of 1982 cut Savings and Loan Associations loose from the tight girdle of ‘old-fashioned’, ‘restrictive’ Federal legislation, opening the door wide to the ransacking and enronisation of the ‘thrift’ banking sector, which in turn laid the groundwork for the subsequent giga-financial scandals that are now being exposed. President Reagan unveiled this legislation at a Rose Garden presentation and signing ceremony on 15th October 1982, before an audience of 200 people. Billed as a major piece of deregulation legislation, this law represented nothing less than the US criminal kleptocracy’s charter to ransack and pillage the middle and working classes. For 50 years, American families had relied on Savings and Loan Associations to finance their homes; but Reagan now pronounced that ‘outmoded regulations left over from the 1930s Great Depression’ had been preventing thrift institutions from competing in the complex, sophisticated financial marketplace of the free-wheeling 1980s.
When signing the bill with a flourish, Reagan pronounced: ‘All in all, I think we’ve hit the jackpot’.
But those who ‘hit the jackpot’ turned out, predictably, to be the organised criminal kleptocracy that had infiltrated official structures, could immediately mobilise criminal funds to buy their way into thrift institutions, and were embedded inside the corrupted US intelligence community. A new breed of swashbuckling Savings and Loan executive sprang up on cue, like weeds, out of the rich soil fertilised at the October 1982 Rose Garden ceremony.
Among their leaders was the notorious Neil Bush, then-Vice President George H. W. Bush’s son, who became a Director of Silverado Savings and Loan, of Denver, CO, and Andrew Cuomo, the son of New York Governor Mario Cuomo, who tried to buy Financial Security Savings of Delray Beach, Florida. The former Governor of Illinois, Dan Walker, bought First American Savings of Oak Brook, Illinois. Within 18 months of the Rose Garden signing, Edwin Gray, Chairman of the Federal Home Loan Bank Board (FHLBB) was provided with a grim, classified report and video, which revealed a swathe of abandoned, half-finished condominium units financed by Empire Savings and Loan of Mesquite, Texas: this was when the FHLBB was made aware of the fact that organised criminal cadres had immediately taken advantage of the deregulation of the Savings and Loans, and that an open-ended financial implosion was under way as a consequence. The enronisation of the US thrift industry was an ‘inside job’ from the outset. Source: ‘Inside Job: The Looting of America’s Savings and Loans’, Stephen Pizzo, Mary Fricker and Paul Muolo, McGraw-Hill Publishing Company, New York, 1989, ISBN 0-07-050230-7.
• Securities Act of 1933: This Act, which followed the 1929 crash and the Great Depression, was framed in accordance with the interstate commerce clause of the US Constitution, and requires that any offer for sale of securities using the means and instrumentalities of interstate commerce must be registered under the terms of the 1933 Act. Prior to the 1933 Act, the public regulation of securities in the United States had been governed mainly by State laws (commonly referred to as the ‘Blue Sky’ laws). With passage of the 1933 Act, the patchwork of existing State securities laws was left in place, to supplement the Federal legislation. A crucial dimension of the law is that the 1933 Act makes it illegal to commit fraud in conjunction with the offer or sale of securities.
Exemptions to the registration process under the Act are extremely tightly prescribed.
Hence, except for extremely narrowly defined offerings (for instance, to groups of no more than 35 investors), securities offered or sold to the general public in the United States must be registered by the filing of a registration statement with the Securities and Exchange Commission.
The prospectus for the offering is generally filed in conjunction with the registration statement. The SEC itself prescribes the relevant forms on which an issuer’s securities must be registered, and these forms call, inter alia, for:
(1): A description of the issuer’s properties and business;
(2): A description of the securities to be offered for sale;
(3): Information about the management of the issuer;
(4): Information about the securities (if other than common stock); and:
(5): Financial statements certified by independent accountants.
It is illegal for an issuer to lie or to omit material facts from a registration statement or prospectus. Secondary market transactions may take place without registration. Under Rule 144A, resales of restricted securities between ‘Qualified Institutional Buyers’ (QIBs) are exempted, thus creating a secondary market in restricted securities among the largest Wall Street houses.
• Securities Acts Amendments of 1975: See: Securities and Exchange Commission (SEC).
• Securities and Exchange Commission (SEC): A Federal agency created under the Securities Exchange Act of 1934, to administer the following legislation:
(1): The Securities Exchange Act of 1934;
(2): The Securities Act of 1933;
(3): The Public Utility Holding Company Act of 1935;
(4): The Trust Indenture Act of 1939;
(5): The Investment Advisor Act of 1940; and:
(6): The Securities Acts Amendments of 1975, which ratified free market determination of brokers’ commissions and gave the SEC authority to oversee the development of a National Market System.
The SEC has five Commissioners, appointed by the President of the United States on a rotating basis for five-year terms. The statutes administered by the SEC are designed to:
(1): Promote full disclosure;
(2): Protect the investing public against malpractice in the securities markets;
(3): Require all issues of securities offered in interstate commerce or through the mails, to be registered with the SEC;
(4): Supervise all national securities exchanges and associations;
(5): Supervise investment companies, investment counselors and advisers, Over-the-Counter brokers and dealers, and virtually all other individuals and firms operating in the investment field.
Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘SEC‘.
• Securities Exchange Act of 1934: This legislation, which governs the US securities markets, was enacted on 6th June 1934. The Act:
(1): Outlawed misrepresentation and manipulation, and other abusive practices in respect of the issuance and marketing of securities.
(2): Created the Securities and Exchange Commission to enforce the Securities Acts 1933 and 1934.
The primary stipulations of the 1934 Securities Act are as follows:
(1): Registration of all securities listed on stock exchanges, and periodic disclosures by issuers of financial status and changes in condition.
(2): Regular disclosure of holdings and transactions of ‘INSIDERS’ (officers and directors of a corporation and those who control at least 10% of equity securities).
(3): Solicitation of proxies enabling shareholders to vote for or against policy proposals.
(4): Registration with the SEC of stock exchanges and brokers and dealers to ensure their adherence to SEC rules through self-regulation.
(5): Surveillance by the SEC of trading practices on stock exchanges and Over-the-Counter (OTC) markets, to minimise the possibility of insolvency among brokers and dealers.
(6): Regulation of Margin Requirements for securities purchased on credit. These requirements are set by the Federal Reserve Board.
(7): The provision of subpoena power for use by the SEC in investigations of possible violations and in enforcement actions.
Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Securities Exchange Act 1934’.
• Self-Regulatory Organization (SRO):
These are Federal organisations established to enforce fair, ethical and efficient practices in the securities and commodities futures industries. The practices are referred to as ‘industry rules’ to distinguish them from regulatory agencies such as the Securities and Exchange Commission (SEC) or the Federal Reserve Board. SROs include:
(1): All the national securities and commodities exchanges; and:
(2): The National Association of Securities Dealers (NASD), representing:
• All firms operating in the Over-the-Counter market; and:
• The Municipal Securities Rulemaking Board (MSRB), established under the US Securities Acts Amendments of 1975 to regulate brokers, dealers and banks dealing in municipal securities. The NASD enforces the rules promulgated by the MSRB with bank regulatory agencies. Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘SRO’.
(1): Of Securities: The conclusion of a securities transaction in which a broker/dealer pays for securities bought for a customer or delivers securities sold, being paid from the buyer’s broker.
(a): Regular Way Delivery and Settlement is completed on the third full business day following the date of the transaction for stocks (called the Settlement Date).
(b): Government Bonds, and Options, are settled on the next business day.
(2): Of Futures/Options: Represents the final price, established by Exchange Rule, for prices prevailing during the closing period and upon which Futures Contracts are Marked to The Market. Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Settlement’.
• Sherman AntiTrust Act:
Passed in July 1890, this legislation described in general terms, without the benefit of definitions, activities that were viewed as monopolistic and were therefore illegal. Many of the definitions had already been determined by case law involving court actions by employers combating the activities of trade unions. The Act forbade ‘every contract, combination… or conspiracy in the restraint of trade or commerce’. Sources: Michael C. Cottrell, B.A., M.S., ‘Elite Power & Capital Markets’, thesis submitted in partial fulfillment of the requirements for the Degree of Master of Science, for The Administration of Justice Department, Mercyhurst College, Erie, PA 13th February 2002; Jack C. Plano and Milton Greenberg, ‘The American Political Dictionary’, 4th Edition, Hinsdale, the Dryden Press, 1976, page 328.
• Story’s First Law:
‘All organisations are run for the benefit of those running the organisation’.
• Story’s Second Law:
‘The interests of the supplier and the consumer diverge’.
• Story’s Third Law: ‘Sooner or later, all operations and covers are blown’.
• Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA):
Federal legislation which reversed some earlier tax reductions, established a 10% withholding tax applicable to dividends, repealed accelerated appreciation deductions and provided that American taxpayers must report all sources of income, wherever it was earned anywhere in the world.
It follows that all receipts received by US taxpayers since the passage of this Act which have not been reported to the Internal Revenue Service (IRS) are taxable, which means that all US taxpayer holdings in offshore accounts that have not been declared for tax are liable for US tax and also for penalties. It also means that ‘program’ participants expecting their funds eventually to be paid into offshore accounts may not only be in denial about the fact that they have been scammed, but may have also allowed themselves to become co-conspirators in tax evasion with the perpetrators of the scams themselves. It is standard criminalist practice to procure that targeted victims are enticed into compromising themselves by the perpetrators.
• Terrorism Prevention Act of 1996:
This legislation added terrorism-related crimes as predicates for money-laundering. Madinger and Sydney A. Zalopany, ‘Money Laundering: A Guide for Criminal Investigators’, New York: CRC Press, LLC, 1999, page 43.
(1): In Financial Reporting: Ease of understanding, made possible by FULL, CLEAR and TIMELY disclosure of relevant information.
(2): In Securities Transactions, price transparency means access to information concerning the depth of the market that would enable detection of fraud or manipulation. Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Transparency’.
• Trust Indenture Act of 1939:
This legislation supplemented the Securities Act of 1933, requiring the appointment of a suitably independent and qualified trustee to act for the benefit of the holders of securities. The legislation specified certain substantive provisions for such a trust indenture that must be entered into by the issuer and the trustee. The law is administered by the Securities and Exchange Commission (SEC).
• Truth in Lending Act:
Federal legislation which established disclosure rules that lenders must observe in dealings with borrowers. The Act stipulates that consumers must be told annual percentage rates, potential total cost, and any special loan terms. Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Consumer Protection Act of 1968’.
• Truth in Lending Act (TILA) of 1968:
This legislation is designed to protect consumers involved in all kinds of credit transactions, including (and especially) mortgages. It is contained in Title 1 of the Consumer Credit Protection Act as amended. The purpose of the legislation is to promote the informed use of consumer credit by requiring disclosures about its terms, and gives consumers the right to cancel certain credit transactions that may involve a lien on the consumer’s principal home. It regulates certain credit card practices, and provides a mechanism for the fair and timely resolution of credit disputes. The law requires the uniform and standardised disclosure of costs and charges so that consumers can shop around (thereby promoting competition). The legislation further prohibits certain practices associated with credit secured on a consumer’s principal dwelling. The lender must disclose to the borrower the annual percentage rate charged (APR), which must reflect the cost of the credit to the consumer. The legislation proved ineffective in curbing the abuses which were highlighted as a consequence of the corruption exposures, because many mortgage lenders failed to comply with the Act’s disclosure provisions, and were not prosecuted or penalised accordingly.
To assume the risk of buying a NEW ISSUE of securities from an issuing corporation or Government entity and reselling the securities to the public, either directly or through dealers. The underwriter makes a profit on the difference between the price paid to the issuer and the Public Offering Price, called the Underwriting Spread. Source: John Downes and Jordan Elliot Goodman, ‘Dictionary of Finance and Investment Terms’, 7th Edition, Happauge: Barron’s Educational Series, Inc., 2006, s.v. ‘Underwrite’.
• Underwriting Spread: See ‘Underwrite’ above.
• Vault Cash Act of 1959:
This legislation modified the reserve requirements of Federal Reserve member banks to allow the banks to count their vault cash, in excess of specified percentages of their deposits, as part of their required reserves. This was one of innumerable retrograde modifications since the Second World War which have facilitated covert financial operations, to the detriment of global financial stability and integrity. Source: Munn, ‘Encyclopedia of Banking & Finance’, page 589.
THE ORIGINAL PONZI SCHEME EXPLAINED:
Charles Ponzi, an immigrant from Italy to Boston, MA, made millions of dollars for a brief period, by exploiting his shrewd observation that while national currencies were fluctuating wildly in 1920, just after the end of the First World War, the Universal Postal Union (UPU) issued coupons which were always worth a given amount of postage stamps.
In those days, European refugees were flocking to the United States, Canada and Brazil; and often, their only contact with their families and friends back home was an occasional letter, enclosing a few dollars. The Universal Postal Union arranged to move the millions of postwar letters, business documents and messages across national borders by issuing Postal Reply Coupons.
You bought a Postal Reply Coupon in your country of residence, and enclosed it with your letter. Your mother, once she had received the letter, exchanged the Postal Reply Coupon for stamps at her local post office.
Charles Ponzi told friends in Boston: ‘Everybody’s heard of the Postal Union. They print coupons like these I’m holding here: Postal Reply Coupons. You can send a letter home, or anywhere in the world, with these coupons. And you can trade this coupon for a stamp in any country. I send my mother coupons with every letter that I write home’.
‘Now, in cooperation with certain large businesses in our city, I am making a fortune on the Postal Reply Coupon. Stocks are too risky. Forget it. And bonds, what are they paying these days? Maybe six percent? Savings accounts at Tremont Trust, they’ll give you four and a half cents on the dollar. Give them $100 and they’ll give you back $104.50. I can beat that into the ground’, Ponzi insisted, beating his cane against the floor. ‘My investors get 50 cents on the dollar. Place a hundred dollars with my Securities Exchange Company, and you take out $150. Put that $150 in, you’ll get back $225. That’s right, in six months, you can more than double your money’.
How could he pay 50%, when banks couldn’t even manage to pay 5%? ‘Exchange rates’, Mr Ponzi explained. ‘Every morning I go down and check to see how the lira is doing against the US dollar. Usually you get five lire for a dollar. This morning I checked, and with the war just ended, it takes 20 lire to the dollar’. While currency rates were bouncing around like popcorn, Mr Ponzi explained, the Postal Reply Coupon always bought one stamp. Here’s what I do’.
‘I send my cousin in Parma, Italy, $1.0. He exchanges the dollar for lire. With the 20 lire ( or 2,000 centesimi), he can buy 66 Postal Reply Coupons (worth 30 centesimi each, the cost of a letter-sized stamp in Italy). Back in the United States, each of the coupons buys one stamp, at face value five cents. I redeem all 66 coupons for $3.30 worth of stamps. The magic happens in the exchange rate. In America, my dollar buys 20 Postal Coupons. But if I exchange the dollar for Italian lire, and buy the coupons in Italy, then return and buy the stamps in America, I get $3.30 worth of stamps for that same $1.0. My profit margin is 230%’.
‘Yeah, but $3.30 worth of stamps is still stamps’, complained an attentive listener.
‘I know’, said Ponzi. ‘So I sell the stamps at a 10% discount through my contacts with the larger firms downtown in our city. Deducting the discount, I’ve got $3.0 cash now, from the $1.0 that I started out with. Now, let’s say, I got that dollar from you. I will pay you back your dollar, plus 50 cents of interest. Since I just sold $3.0 worth of stamps, I have a dollar and 50 cents for myself. I’m going to spend a third of that on my offices and processing overheads, and a third on commissions and bonuses to my sales people; and then, ladies and gentlemen, I’m going to pocket the other third and take my wife for a stroll’.
THE ORIGINAL FALSE PROSPECTUS IS SOON ABANDONED, AND REPLACED BY… ZILCH
This was the essence of the original Ponzi scheme. Note that in this description, Ponzi starts out by exploiting the fluctuations of exchange rates, and the lack of arbitrage; and note that, by the end of the explanation, he is simply NOW offering 50% interest, which he pays out to claimants out of the additional funds he has received from other investors who are likewise anticipating a 50% return on their investments, within a short space of time.
The germ of the idea was derived from the foreign exchange market; but once Ponzi has realised that people will pour their money his way if they are promised a 50% return, he can abandon his elaborate explanation (his ‘prospectus’) of the exploitation of exchange rate fluctuations and the tedious task of shipping, receiving, handling and exchanging Postal Reply Coupons, which gave him the ‘easy money’ idea in the first place.
In other words, his sales pitch is no more than a now redundant, expendable illustration – a false prospectus which disguises the fact that he is really promoting a pyramid selling operation. For he has realised that all his investors care about is receiving 50% on their money. How this is to be achieved does not normally concern them.
ALL THEY WANT IS A HUGE RETURN ON THEIR MONEY.
By December 1920, Charles Ponzi was matching old money with ever larger amounts of new money. In May 1921 alone, almost $500,000 of new money poured into the Securities Exchange Company – as 1,500 or more new customers, lured by the 50% yield offered through advertisements, sought their share of the huge profits they thought would be forthcoming at minimal risk. The office now bulged with fat stacks of dollar bills.
THE FLOOR STARTS TO GIVE WAY BENEATH HIM
But problems started to arise when Joseph Daniels filed a lawsuit alleging that he had helped to found the Securities Exchange Company (SEC) with a loan of $230 worth of furniture plus $200 in cash. Daniels had indeed provided the beaten-up desks that had been offloaded in the dusty office, and had let Mr Ponzi have $200 to spark interest in the Postal Coupons. It wasn’t just a loan, Daniels maintained, now that Ponzi was drowning in cash. ‘We were partners. I put up capital and property’. On 2nd July, Mr Ponzi was handed a demand for $1.0 million.
The Boston Post telephoned, and Mr Ponzi told the reporter that he had indeed bought furniture from Mr Daniels, but that he had never received any money for investment from him.
But when the newly installed banking commissioner for Massachusetts, Joseph Allen, read the newspaper, he wondered: ‘Where did Ponzi come from? Who are his associates? How is he managing to double people’s money?’
Allen asked Ponzi to pop round to his office, for an interview. The Securities Exchange Company did not describe itself as a bank, nor did it offer any banking services.
Therefore, in the absence of a complaint – and none had yet arrived – the Commissioner had no jurisdiction to examine Charles Ponzi’s business. At the interview, Ponzi explained the curiosities surrounding Postal Coupons, pointed out that money chased money, collected his black hat and coat, doffed his hat, and bid Mr Allen goodbye.
But Richard Grozier, city editor at The Boston Post, had always thought that Charles Ponzi’s scheme was fraudulent; and to initiate what he fancied would be the inevitable coming débacle, he elicited a comment from one of Boston’s leading citizens, Clarence Barron, the owner of Dow Jones & Co and The Wall Street Journal.
At the end of July 1920, The Boston Post carried a front page story entitled: ‘Clarence Barron questions the motive behind Ponzi’s scheme’.
Theoretically, Barron admitted, you could indeed turn a profit on the UPU coupons. But that was the only truth buried within the operation. You could never earn more than a few thousand dollars, not just because of the trouble involved in offloading the stamps and tracking the various conversions driving the process, but because there simply were not enough coupons available.
France, Romania and Spain had just abandoned the scheme, a few months earlier. A cursory check with the UPU showed that they only had a few hundred thousand dollars’ worth of coupons left in circulation – nowhere near the $10 million or $15 million Mr Ponzi claimed to be trading. So where was Ponzi getting his coupons from? Furthermore, the US Postal Service had announced, on 2nd July 1920, that Postal Reply Coupons would no longer be redeemable in lots larger than ten. So how was Ponzi converting his coupons into stamps?
Finally, Barron asked, if Ponzi is doubling everyone else’s money, why does he keep his own funds in regional banks? The Boston Post knew that Ponzi kept millions of dollars on deposit at seven or eight New England banks, and that the accounts were ballooning. How could a man who was paying 100% interest every 90 days, put up with drawing just 4% on his holdings? Barron concluded:
‘Right under the eyes of our Government, Mr Ponzi has been paying out US money to one line, with deposits taken from a succeeding line’ (another bank).
All of a sudden, all the doors which had flown back on their hinges at the sight of Mr Ponzi, were slamming tight shut. The Massachusetts District Attorney ordered Ponzi to cease and desist. His customers demanded their money back, and Ponzi was eventually jailed for Federal mail fraud, then deported. He wound up destitute in a poor house in South America (1).
(1). ‘How Charles Ponzi pulled it off: Making a fine art out of a pyramid fraud’, International Currency Review, Volume 27, Number 3, December 2001, pages 51-52.
REITERATION OF THE STATUTES, SECURITIES REGULATIONS AND LEGAL PRINCIPLES OF WHICH THE CRIMINALISTS, THEIR ASSOCIATES AND RELEVANT BANKSTERS ARE IN BREACH:
LEGAL TUTORIAL: The Steps of Common Fraud:
Step 1: Fraud in the Inducement: “… is intended to and which does cause one to execute an instrument, or make an agreement… The misrepresentation involved does not mislead one as the paper he signs but rather misleads as to the true facts of a situation, and the false impression it causes is a basis of a decision to sign or render a judgment” Source: Steven H. Gifis, ‘Law Dictionary’, 5th Edition, Happauge: Barron’s Educational Series, Inc., 2003, s.v.: ‘Fraud’.
Step 2: Fraud in Fact by Deceit (Obfuscation and Denial) and Theft:
• “ACTUAL FRAUD. Deceit. Concealing something or making a false representation with an evil intent [scanter] when it causes injury to another…”. Source: Steven H. Gifis, ‘Law Dictionary’, 5th Edition, Happauge: Barron’s Educational Series, Inc., 2003, s.v.: ‘Fraud’.
• “THE TORT OF FRAUDULENT DECEIT… The elements of actionable deceit are: A false representation of a material fact made with knowledge of its falsity, or recklessly, or without reasonable grounds for believing its truth, and with intent to induce reliance thereon, on which plaintiff justifiably relies on his injury…”. Source: Steven H. Gifis, ‘Law Dictionary’, 5th Edition, Happauge: Barron’s Educational Series, Inc., 2003, s.v.: ‘Deceit’.
Step 3: Theft by Deception and Fraudulent Conveyance:
THEFT BY DECEPTION:
• “FRAUDULENT CONCEALMENT… The hiding or suppression of a material fact or circumstance which the party is legally or morally bound to disclose…”.
• “The test of whether failure to disclose material facts constitutes fraud is the existence of a duty, legal or equitable, arising from the relation of the parties: failure to disclose a material fact with intent to mislead or defraud under such circumstances being equivalent to an actual ‘fraudulent concealment’…”.
• To suspend running of limitations, it means the employment of artifice, planned to prevent inquiry or escape investigation and mislead or hinder acquirement of information disclosing a right of action, and acts relied on must be of an affirmative character and fraudulent…”.
Source: Black, Henry Campbell, M.A., Black’s Law Dictionary’, Revised 4th Edition, St Paul: West Publishing Company, 1968, s.v. ‘Fraudulent Concealment’.
• ‘FRAUDULENT CONVEYANCE… A conveyance or transfer of property, the object of which is to defraud a creditor, or hinder or delay him, or to put such property beyond his reach…”.
• “Conveyance made with intent to avoid some duty or debt due by or incumbent or person (entity) making transfer…”.
Source: Black, Henry Campbell, M.A., ‘Black’s Law Dictionary, Revised 4th Edition, St Paul: West Publishing Company, 1968, s.v. ‘Fraudulent Conveyance’.
U.S. SECURITIES REGULATIONS OF WHICH KEY INSTITUTIONS HAVE BEEN SHOWN TO BE IN BREACH:
• NASD Rule 3120, et al.
• NASD Rule 2330, et al
• NASD Conduct Rules 2110 and 3040
• NASD Conduct Rules 2110 and IM-2110-1
• NASD Conduct Rules 2110 and SEC Rule 15c3-1
• NASD Conduct Rules 2110 and 3110
• SEC Rules 17a-3 and 17a-4
• NASD Conduct Rules 2110 and Procedural Rule 8210
• NASD Conduct Rules 2110 and 2330 and IM-2330
• NASD Conduct Rules 2110 and IM-2110-5
• NASD Systems and Programme Rules 6950 through 6957
• 97-13 Bank Secrecy Act, Recordkeeping Rule for funds transfers and transmittals of funds, et al.
U.S. LAWS ROUTINELY BREACHED BY THE CRIMINAL OPERATIVES AND BANKSTERS:
• Annunzio-Wylie Anti-Money Laundering Act
• Anti-Drug Abuse Act
• Applicable international money laundering restrictions
• Bank Secrecy Act
• Conspiracy to commit and cover up murder.
• Crimes, General Provisions, Accessory After the Fact [Title 18, USC]
• Currency and Foreign Transactions Reporting Act
• Economic Espionage Act
• Hobbs Act
• Imparting or Conveying False Information [Title 18, USC]
• Maloney Act
• Misprision of Felony [Title 18, USC] (1)
• Money-Laundering Control Act
• Money-Laundering Suppression Act
• Organized Crime Control Act of 1970
• Perpetration of repeated egregious felonies by State and Federal public employees and their Departments and agencies, which are co-responsible with the said employees for ONGOING illegal and criminal actions, to sustain fraudulent operations and crimes in order to cover up criminalist activities and High Crimes and Misdemeanours by present and former holders of high office under the United States
• Provisions pertaining to private business transactions being protected under both private and criminal penalties [H.R. 3723]
• Provisions prohibiting the bribing of foreign officials [F.I.S.A.]
• Racketeer Influenced and Corrupt Organizations Act [R.I.C.O.]
• Securities Act 1933
• Securities Act 1934
• Terrorism Prevention Act
• Treason legislation, especially in time of war.
• Please be advised that the Editor of International Currency Review cannot enter into email or other correspondence related to this or to any of the earlier reports.
We are a private intelligence publishing house and have no connections to any outside parties including intelligence agencies. The word ‘intelligence’ on this website and in all our marketing material is used for marketing/sales purposes only and has no other connotations whatsoever: see ‘About Us’ on the red panels under the Notes on the Editor, Christopher Story FRSA, who has been solely and exclusively engaged as an investigative journalist, Editor, Author and private financial and current affairs Publisher since 1963 and is not and never has been an agent for a foreign power, suggestions to the contrary being actionable for libel in the English Court.