FedUpUSA

Archive for November 18th, 2011

An interesting title in an email sent to me overnight — but I don’t quite see it the way the writer had hoped.

Let’s first dispense with the underlying claim: There’s something sinister, evil, or simply unlawful about protesting — exercising First Amendment Rights — if the message goes on for more than some period of time or if anyone is inconvenienced.

Uh, no.  That’s not the test.  It never has been and isn’t now.

Remember that our President (whoever it is at any given point in time) shuts down entire cities on a regular basis for political purposes.  Think not?  Wrong.  Anyone remember Clinton’s famous haircut?  But that was just one example; Presidents have in the modern era literally closed entire freeways end-to-end for hours at a time.  I got caught in that more than once when I lived in Chicago and it just recently happened in LA with President Obama.  It’s almost a national sport and yet I hear nobody claim that it’s illegal to inconvenience entire cities for the political perquisites of a single individual.

And note carefully folks — in both the case of the President going somewhere in the US to make a speech or fundraising dinner and the OWS folks marching on the NYSE, the underlying purpose and intent is political speech.  Both create disruption and that disruption is intentional.  The President could choose to not make his speech, and he could choose to drive a Chevy, dismissing his detail should he so choose (and accepting the risk thereupon) but he doesn’t.  Likewise the OWS protesters could choose to not make their speech, they could choose to not march today, but they chose not to.

So I am forced to dismiss out of hand the argument that because people and private businesses are inconvenienced that this is a violation of the law.  Sorry, but until I as a private businessperson or just an old-fashioned private citizen am entitled to compensation from the President personally when he shuts down an entire freeway for hours so he can have his little security bubble, not to mention every other place he goes, this claim amounts to nothing more than “The divine right of Kings” and we’re not supposed to have Kings in this nation.

Second, there is a deeply-disturbing undercurrent that has surfaced in the last week or so at these protests, and it has nothing to do with the protest and everything to do with the cities and other governments involved.

I speak of NY’s (and Oakland’s) acts regarding the media.

The First Amendment, including not only the freedom of speech but also freedom of the Press, is sacrosanct.  It is the second to the last guardian of our representative republican form of government.

‘Our liberty depends on the freedom of the press, and that cannot be limited without being lost.’ – Thomas Jefferson

There is no need for an arbitrarily-issued (or denied) “Press Pass” to be a member of The Press.  Being a member of The Press is a function of what you’re doing, not whether you have a permit.  Like the remainder of the Bill of Rights one does not need a permit to exercise a right.

If you are holding a camera and filming, in still or video, for dissemination to the public, if you are carrying a recorder and interviewing people for dissemination to the public you are a member of The Press.  NYPD refuses to issue “press credentials” to “online reporters” (e.g. moi) which is a clear violation of the rights of those who report in other than their “approved” media.  Note that having and carrying a Press Pass is itself nothing more than a convenience factor for the police in identifying those who would be engaged in such protected activity, since again, a right needs no permission slip for its exercise.

NYPD is reported to have closed airspace over Zucotti Park during their recent raids to the press and both arrested and in at least one documented case beat a reporter.

THIS IS POLICE-STATE BEHAVIOR AND MUST NOT STAND.

No legitimate law enforcement activity taken in a public space can legitimately exclude The Press.  The Press is well-aware that being present in such a circumstance carries the risk of injury or worse.  That’s part of the game, just as it is when a reporter embeds in a war zone.  You do it because it’s part of the job, and you willingly accept that risk.

There is an obvious question in these reports that is raised: NYPD and/or Bloomberg doesn’t have jurisdiction over airspace; the FAA does.  If NY authorities actually issued this order it was blatantly and intentionally unlawful.  If such a closure was issued by the FAA it should be findable as a NOTAM or similar bulletin; I’ve failed to find same.  In other words such a “closure order” by NYPD or Bloomberg appears to be blatantly unlawful.  That a CBS chopper was grounded by the NYPD, however, was reported by a Reuters editor; it thus appears to be a credible report.

The fact of the matter is that when authorities exclude The Press from viewing and reporting on acts that they take in a public space and enforce that exclusion through the use of force, as occurred in this case, it is by definition that they are doing so because they do not want the public to see what they intend to do.  That is, their intended actions are known to them in advance to be over the line of what the people will tolerate and/or are over the line of legal law-enforcement behavior.

The very act of exclusion declares intent — that is “scienter” — to commit violent felonies upon the people.

This is the lesson of history: Regimes exclude reporters because they intend to commit large-scale mayhem, violate people’s rights and even commit wholesale murder.

The first two Amendments to the Constitution are present for the specific purpose of preventing this behavior by the government — by the ever-present explicit threat of exposure of such behavior to white-hot sunlight where the people may judge it, and, God forbid, so the people have the means in the gravest extreme to put a stop to it.

At the root OWS is about massive injustice.  We’re not talking about small exercises of improper influence and lies either — this is about really, really big ones.  Take, for example what Matt Taibbi wrote about yesterday:

Last week, a federal judge in Mississippi sentenced a mother of two named Anita McLemore to three years in federal prison for lying on a government application in order to obtain food stamps.

Apparently in this country you become ineligible to eat if you have a record of criminal drug offenses. States have the option of opting out of that federal ban, but Mississippi is not one of those states. Since McLemore had four drug convictions in her past, she was ineligible to receive food stamps, so she lied about her past in order to feed her two children.

Ok, so the law is that you’re ineligible to receive food stamps if you have a conviction for a drug offense.  She had four and lied; ergo, she committed fraud.  The amount of the fraud was $4,367 — the taxpayers got rooked out of that money by the black letter of the law.

For committing this fraud Anita drew three years in prison.  Now you can argue that this punishment is too harsh if you wish, but the fact remains that it’s illegal to commit fraud and if you do it and get caught, you risk going to prison.  She did it, albeit to feed her children (one presumes), she got caught, she then made full restitution and got three years anyway.

Now here’s the problem: Both Citibank and Goldman rooked people out of hundreds of millions of dollars, it is alleged.  They were allowed to neither admit or deny culpability and pay back only a fraction of the harm done while nobody went to prison.  Even worse Citi’s former risk manager testified under oath that by 2007 fully 80% of their loans violated the quality guidelines that were allegedly in place so as to prevent the buyers from being rooked and documentary evidence was produced that the board of directors was informed that it was happening.

Nor is that all: Wachoiva pled guilty to laundering hundreds of millions of dollars of drug money for Mexican Drug Cartels.  Some part of that money undoubtedly went to buy guns that were then used to kill both Americans and Mexicans.  Did anyone go to prison?  Nope — Wachovia got a “deferred prosecution agreement” and simply paid a fine.

Pfizer got caught twice illegally promoting drugs for “off-label” uses (a felony) and was committing the second offense while negotiating a settlement on the first.  The CEO, Jeff Kindler (general counsel at the time of the first offense, CEO at the time of the second) was rewarded by being elected to the board of the NY Fed!  Again, Pfizer simply paid a fine for admitted criminal conduct but nobody went to prison.

Remember folks, the standard here is that using drugs for unlawful purposes is a serious offense.  Just ask Anita, who covered up her previous convictions for unlawfully using a substance we don’t like very much and drew three years in prison for doing so.

If these offenses were “one time” deals you might find a way to excuse them.  But they’re not.  Citi, among others, has repeatedly violated these anti-fraud laws.  As I recently wrote upon the majority of the firms brought up on such charges had previously been charged and consented to injunctions — they were therefore serial offenders and even worse were violating court orders along with the law at the time.

Yet nobody has gone to prison.

The argument is often raised by the political elite, including Obama, that the acts in question are “not illegal.”  That’s nonsense.  Violating an injunction is contempt of court and is most-certainly illegal.  Fraud, beyond trivial amounts of money, is a felony.  Intentionally filing knowingly-perjured documents in a court is a felony and yet the very first criminal indictment for the practice of doing so on a routine basis, with something like 100,000 admitted acts, was issued just this last week in Nevada (bearing some 600 counts.)

Civil disobedience and serious movements of protest tend not to arise unless the injustice being complained about is pernicious and impacts large swaths of the population.  Granny might wave a sign in front of the courthouse if she gets screwed by a bad judgment, but it’s not until millions of people get hosed that you have people willing to live in a tent in near-freezing weather to make a political statement.

We’re there folks.

Those who wish to argue that there is “recourse to the political system by simply voting” have a more than two-decade record to contend with that says it doesn’t work, exactly as MLK and the other civil rights marchers did.  The fact of the matter is that neither major political party gives a flying f$3k about the frauds committed on a daily basis by major businesses, especially in the banking sector.  Small business, on the other hand, is an entirely-different matter.  There’s a user on the forum who’s former boss went to prison for forging time records in his small trucking company.  The large trucking companies do the same thing literally every day and the number of times you’ve seen someone go to prison for this offense is an effective zero.  Were I to have committed fraud when I ran my Internet company I’m sure I would have done hard time for it.  But when I was able to document a rank violation of the law relating to local exchange carriers I couldn’t get anyone in the regulatory or law enforcement apparatus interested in enforcing the law, even though I had written proof of the violation!

When this sort of thing becomes a business model and the people get screwed to a grand degree, as has occurred in this case, exactly what sort of recourse would you suggest the people use?  I argue that non-violent protest and demonstration is all you’ve got that meets the criteria.  The other options are to put a stick in your teeth, in which case you’re living in a feudal society and not a republic, or to engage in vigilante justice and hang the offenders in public from the nearest lamppost, in which case you’re living in anarchy.  Neither is acceptable conduct and neither has a reasonable probability of doing more good than harm.

If you remember we’ve tried the “wave signs and then go home” protest form too — that led to exactly…. nothing.

Thus, durable and continuing political speech, exercising all of one’s right of free expression, is all that’s left in the political sphere.  The boundaries of The First Amendment are intentionally wide when the subject matter is a political protest for exactly this reason — the other two alternatives in the choice of actions available to the people are to either live in oppression or rise in revolution, and if the first is all that one admits as “reasonable” (arguing that durable and continuing political protest is “inappropriate” or even worse, “illegal”) then the latter becomes, over time, inevitable.

We must not go there as a nation and people.

Suppressing dissent, transparency and fact inevitably leads to systemic collapse– exactly what we’re seeing in the European financial system.

Fortunately for us, when our immune system identifies a cancer cell, the cancer cell can’t demand to be saved by threatening to kill the entire system. You see the irony here, of course; the cancer cell willdestroy the entire organism/system if it is spared, so its threat to bring down the entire system if it is eradicated is pure self-serving artifice.

This is a precise analogy for the “too big to fail” banks in the U.S. and the Eurozone:once again we are hearing the heavy-breathing threats that a systemic bank failure would destroy civilization. The truth is that preserving the cancerous banking system will inevitably bring down the entire system, so the only way to preserve the global economy is to eliminate the financial cancer now,before it triggers systemic collapse.

The best way to understand this is to consider the economy as a system.All sustainable, stable systems require a free flow of information: multiple pathways of communication, experimentation/mutation and transparent feedback.  This essential activity generates the low-intensity instability of volatility and fluctuation.

A system which suppresses information and the low-level instability of dissent and negative feedback thus suppresses the information the system needs to remain stable.  Suppressing dissent, facts, transparency and feedback inevitably destabilizes the system.It is ironic, isn’t it, that the suppression of dissent, facts and transparency creates the surface illusion of stability, but it is only a facade.  Beneath the surface, the lack of information and low-level fluctuation/volatility builds up system instability which is suddenly released as non-linear, chaotic volatility and collapse.

What Europe, the U.S., China and Japan have now are leaderships that substitute lies for fact,  obfuscation for transparency,  artifice for feedback and   propaganda for communication.The essential negative feedback of dissent has been choked off,  leaving only self-reinforcing positive feedback loops in the system, feedback that inevitably leads to runaway collapse.

In a financial example, when the negative feedback of short positions is banned, then there are no buyers left when the selling begins.  The selling cascades, triggering more selling, which then feeds more selling until the bid disappears entirely.

In Europe, the political and financial Elite is preserving the Status Quo with artifice and lies. This can only lead to non-linear systemic collapse.  Beneath the surface, they are manipulating, intervening, propping and pumping, but preserving a terminally unstable system with more lies and intervention is impossible.

The only question left is how much longer the system can wobble unsteadily before it  finally collapses in a heap of depreciating euros.

Charles Hugh Smith – Of Two Minds

Uh, that last story about Barnhardt exiting the business?

You better think again if you think you’re not at risk.  You are.

LONDON — The London Stock Exchange is becoming the lender of last resort for many banks in Italy as concerns over the country’s debt levels squeeze liquidity out of the Italian financial market.

With cash increasingly hard to come by, Italy’s banks are turning to CC&G, the L.S.E’s Italian clearinghouse, for short-term lending. That includes some of the country’s largest financial institutions, including Unicredit and Mediobanca, according to a person close to the situation.

….

The money, which comes from collateral that traders must put up to complete financial transactions, is deposited with the banks to cover shortfalls in liquidity. CC&G earns a profit by charging banks interest on the money that they borrow.

One inconvenient question: What happens when the bank can’t pay it back?

“Financial entities are making money in new and different ways,” he said. “Just because times are bad doesn’t mean they’re not looking for profits.”

Right.  They’re lending your so-called “margin deposit” out to someone, making the entire premise of depositing margin against your position a bad joke and guess who the joke will be on if anything goes wrong?

Got a mirror handy?

The Market-Ticker

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This is getting bad….

Dear Clients, Industry Colleagues and Friends of Barnhardt Capital Management,

It is with regret and unflinching moral certainty that I announce that Barnhardt Capital Management has ceased operations. After six years of operating as an independent introducing brokerage, and eight years of employment as a broker before that, I found myself, this morning, for the first time since I was 20 years old, watching the futures and options markets open not as a participant, but as a mere spectator.

The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not.And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy.

….

I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg.There is massive industry-wide exposure to European sovereign junk debt. While other firms may not be as heavily leveraged as Corzine had MFG leveraged, and it is now thought that MFG’s leverage may have been in excess of 100:1, they are still suicidally leveraged and will likely stand massive, unmeetable collateral calls in the coming days and weeks as Europe inevitably collapses. I now suspect that the reason the Chicago Mercantile Exchange did not immediately step in to backstop the MFG implosion was because they knew and know that if they backstopped MFG, they would then be expected to backstop all of the other firms in the system when the failures began to cascade – and there simply isn’t that much money in the entire system. In short, the problem is a SYSTEMIC problem, not merely isolated to one firm.

Oh boy.

Look folks, the risks involved here are real.

Rick Santelli was just on CNBC pointing out that there have been no answers forthcoming on the MF Global mess.  There are reports that several people who you would never expect to have gotten caught in something like this did, including Gerald Celente.

The reason they got caught is the same reason I would have gotten caught if I had been clearing through MF Global: Despite being around the markets since well before the 2000 crash and having successfully negotiated that and the 2008 mess everyone has believed, right up until MF blew up, that customer funds were in fact segregated and thus this risk would never occur.

Simply put everyone has now discovered that this assumption is wrong.

Nothing that has come out of the CME, the SEC or Washington DC that has restored my confidence that MF Global is, in fact, a one-off situation.  In point of fact The Fed is now requiring margin on certain repo transactions where they never did before, implying that there may well be additional snakes in the grass and additional unrecognized and intentionally hidden risks of this sort.

Read Ann’s entire missive.  Yes, it’s highly partisan, but given what has just happened and Obama’s continued insistence that “no crimes were committed” (yet no grand juries have been convened to investigate, so how would he know?) it is entirely justified.

Folks, we must insist that the rule of law be brought back into the forefront.  We must do this particularly with credit instruments and other OTC derivatives and that has to happen right now.  In addition all off-balance sheet BS must be ended immediately.

I have, since 2007, advocated that all credit instruments be forced onto an exchange and that cash margin be required on all underwater positions, marked nightly, without exception or offset.  This has been “poo-pooed” as impractical due to bespoke contracts and other considerations.

Now it turns that I was in fact right – there were additional “snakes” in the grass that were cheating.  First we had ENRON, then Bear and Lehman and now this.

Here’s reality folks: We either fix this problem and do it now or you had better pray that Europe doesn’t detonate, because if it does you’re going to see the very thing that everyone was talking about back in 2008 happen on a global scale, it’s a hundred times the size that Lehman was, and we will not be immune to it here in the United States — in fact we’ll damn near be the “center of the sun!”

There is the potential for an imminent cascade failure on these contracts just as there was in 2008; it has not gone away, it has not been attenuated, it has in fact grown in size since 08 and if we do not act to put a stop to it and the risk becomes realized it will be too late.

The Market-Ticker

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