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SEC Shamed: Whistleblower Refuses Multimillion Dollar Award Due to Ex-Deutsche Bank Attorneys at SEC Protecting Deutsche Execs (and Themselves)

Whistleblower Eric Ben-Artzi, fired from Deutsche Bank for refusing to go along with the bank’s efforts to under-report the risks of a massive derivatives trading strategy, one that eventually blew up the Canadian commercial paper market, was the lead story at the Financial Times today.

Ben-Artzi refused to take his share of a $16.5 million SEC whistleblower settlement, the third largest since this new program started. The reason? Per a letter that Ben-Artzi sent to the Financial Times (reproduced in full at the end of this post with his permission), he objected to the agency’s failure to punish anyone at the bank.  As he put it, “…after suffering at the hands of the Deutsche executives I will not join them simply because I cannot beat them.”

For background on the trade itself, see here for the details (note we wrote this post after Matt Levine at Bloomberg issued a typical “nothing to see here” dismissal. Even the normally-complacent SEC begged to differ). An overview from a 2013 post:

The underlying trade in question was a MEGO (My Eyes Glaze Over) type, a pre-crisis confection called a leveraged super senior trade. The extensive attachments to Ben-Artzi’s complaint made it clear (once you parsed them) that the valuation of this very large trade was basically a kludge. Ben-Artzi had been hired from Goldman to address that, and was pretty much prevented from doing his job, and then fired.

The reason this is a big deal is Deutsche’s losses on the trade would have been as much as $12 billion versus $45 billion of equity. And it had to go through what was called “the largest credit resturcturing in history” to dodge that bullet. Both the Bundesbank and the SEC are investigating the complaints about this trade.

As Ben-Artzi explained, and as we’ve discussed numerous times over the years, the revolving door between Deutsche Bank and the SEC is so extensive that it’s hard to see it as an accident. We’ve argued repeatedly that the failure of the SEC to pursue abuses in the CDO market in anything more than a cursory manner was due to the fact that the head of enforcement, Robert Khuzami, had been the General Counsel for the Americas for Deutsche Bank from 2004 to 2009. Deutsche Bank salesman Gregg Lippmann was patient zero of CDO abuses. CDOs constructed for the purpose of generating cheap subprime shorts were the mechanism that turned what would have been a savings and loan level domestic banking crisis into a global financial cataclysm. The failure of the press and regulators to pursue the central role of this strategy in the financial conflagration means that how and why we had a global financial crisis is still almost universally misunderstood. But any serious investigation of CDOs would have implicated Deutsche Bank and thus Khuzami.

And please don’t try arguing Khuzami could have recused himself. The head of an operation cannot effectively be taken out of the picture. No one is going to pursue a probe that will undermine his boss unless he thinks he can pull off a palace coup.

But as the Ben-Artzi case reveals, it’s even worse. As we wrote in June 2013 in Mary Jo White Institutionalizes Deutsche Bank Protection Racket at the SEC, the agency hired Robert Rice as its chief counsel. Rice had been head of governance, litigation and regulation for Deutsche Bank for the Americas. Ben-Artzi had filed an anti-discrimination suit against him and three others. Dick Walker, who had been the SEC’s head of enforcement from 1998 to 2001, left to join Deutsche Bank, later becoming its general counsel.

Critically, Ben-Artzi describes a two-tier standard of enforcement. He cites the SEC action against the pipsqueak Trinity Capital, and its Los Alamos National Bank operation, which engaged in misconduct that resembled that at Deutsche Bank. But there, the agency filed charges against five executives. The CEO paid a fine as part of his settlement and litigation against two other officers is still in process. The key section from Ben-Artzi’s letter regarding the glaring conflicts of interest:

So why did the SEC not go after Deutsche’s executives? The most obvious concern is that Deutsche’s top lawyers “revolved” in and out of the SEC before, during and after the illegal activity at the bank. Robert Rice, the chief lawyer in charge of the internal investigation at Deutsche in 2011, became the SEC’s chief counsel in 2013. Robert Khuzami, Deutsche’s top lawyer in North America, became head of the SEC’s enforcement division after the financial crisis. Their boss, Richard Walker, the bank’s longtime general counsel (he left the bank this year) was once head of enforcement at the SEC.

This goes beyond the typical revolving door story. In this case, top SEC lawyers had held senior posts at the bank, moving in and out of top positions at the regulator even as the investigations into malfeasance at Deutsche were ongoing.

This took place on the watch of Mary Jo White, the current chair of the SEC, whose relationship with Mr Khuzami and Mr Rice dates back 20 years. She bears ultimate responsibility for the Deutsche fine.

And to reiterate the point we made earlier: Khuzami and Rice recusing themselves from the Deutsche Bank investigation was a joke. The individuals who would be left running the project would all be their subordinates. Mary Jo White, per her endorsement of this revolving door and the SEC’s continued refusal to sanction executives at major firms, despite continuing pressure from the media and reform-minded legislators like Elizabeth Warren and Sherrod Brown, is clearly no supporter of enforcement that might shake up big banks or worse, highlight how badly she erred in accepting senior staff members from banks with more than a little air of sulphur about them. Any SEC employee with an operating brain cell would see that following a line of investigation that might implicate Khuzami or Rice would be a career-limiting move.

This case highlights an even bigger issue: the degree to which attorneys and other professionals are now in the business of providing cover for crooked behavior. In the stone ages of my youth, lawyers used to tell clients what the rules were, how close to the line they could go, and what would happen if they stepped over it. Now they seem mainly to be acting as professional liability shields. One way is via having outside firms rationalize questionable actions. The execs can say, “We relied on expert advice!” and they are off the hook. Benjamin Lawsky, the former Superintendent of Financial Services for the State of New York, started to tackle that issue by sanctioning outside consultants and law firms for providing liability cover in dodgy circumstances.

The Deutsche Bank (and also Goldman) heavy-duty use of the revolving door is another protection racket. The idea that Khuzami and Rice could effectively recuse themselves is an insult to the intelligence of anyone who has ever worked in an organization of meaningful size. Inside players then going into key regulatory positions that shield all actions taken on their watch in their past life has to stop.

And keep this in mind: having lawyers from big firms that have poor compliance cultures (and even by the bad standards of Wall Street, Deutsche Bank was a standout) has another destructive effect: those attorneys will be deeply invested in defending the tainted institutional standards of their former home. That means that they will depict this dubious conduct as normal to SEC staffers, further undermining vigorous enforcement.

The Financial Times story on Ben-Artzi’s rebuff describes the cost to him:

The award determination, which was made in July but has not been previously disclosed, allocated $8.25m each to Mr Ben-Artzi and Matt Simpson, a former Deutsche trader, who both applied for it…

Mr Ben-Artzi said that although he would refuse to take any money himself, he was not able to reject parts of his award — accounting for the majority of the $8.25m — that were claimed by his ex-wife, lawyer or outside experts who worked on his submissions to the SEC.

Help make sure this sacrifice was not in vain. More and more members of the Senate have come to recognize that Mary Jo White, who was once enormously effectively prosecutor, is engaging in compliance theater in her current role. Nine Senators wrote White last month to demand why the SEC had not taken the basic step of issuing investor bulletins, which summarize recent abuses and enforcement actions on private equity, as it has with hedge funds. While this may seem like a minor bureaucratic failure, it actually gets at the heart of the SEC’s too-obvious lack of enthusiasm for pursuing private equity abuses in anything more than a pro-forma manner.

Please e-mail or call the Senators who signed the July letter. Urge them to demand an explanation from Mary Jo White of the failure to fine Deutsche Bank executives over the leveraged super senior trade abuse, and more generally, to probe White’s failure to question how the depth of revolving door relationships between Deutsche Bank and the SEC have made it impossible for the agency to conduct anything more than a superficial investigation, particularly on the central issue of who was ultimately responsible and therefore needs to be held to account? Please press them to conduct hearings on how the revolving door amounts to a protection racket for senior bank executives, and above all, the lawyers themselves that turned a blind eye to or actively enabled misconduct.

These Senators are:

Tammy Baldwin
Sherrod Brown
Richard Durbin
Al Franken
Patrick Leahy
Jeff Merkeley
Jack Reed
Bernie Sanders
Elizabeth Warren

You can find their contact information here. If any of them is your Senator, be sure to mention that, and in those cases, it would be desirable to call their office in their home state.

Below is Ben Artzi’s letter. I hope you’ll circulate it widely.

By Eric Ben-Artzi, a mathematician and former risk analyst at Goldman and Deutsche Bank; now a vice president of risk analytics at BondIT

We must protect shareholders from executive wrongdoing

just got word from the Securities and Exchange Commission that I am to receive half of a $16.5m whistleblower award. But I refuse to take my share. My award, which comes from a fund allocated by Congress, amounts to 15 per cent of the $55m fine the SEC imposed on Deutsche Bank in May 2015 after I informed regulators that my colleagues at the bank had been inflating the value of its massive portfolio of credit derivatives.

I was a risk officer at the bank, and one of the three whistleblowers who in 2010-11 reported the improper accounting internally and to regulators around the globe.

The SEC attorney who oversaw the investigation told the New York Times: “It’s the only enforcement action where we allege that a major financial institution failed to properly value a significant portion of its portfolio of complex securities.”

But Deutsche did not commit this wrongdoing. Deutsche was the victim. To be precise, the bank’s shareholders and its rank-and-file employees who are now losing their jobs in droves are the primary victims.

Meanwhile, top executives retired with multimillion-dollar bonuses based on the misrepresentation of the bank’s balance sheet. It is therefore especially disappointing that in 2015, after a lengthy investigation helped by multiple whistleblowers, the SEC imposed a fine on Deutsche’s shareholders instead of the managers responsible.

Compare this outcome with a contemporaneous SEC enforcement action against the less connected executives of a smaller firm, Trinity Capital, and its subsidiary Los Alamos National Bank. The violations at Trinity seem similar to Deutsche, but orders of magnitude smaller. Five executives at Trinity were charged, the chief executive settled and paid a fine, and litigation continued against two senior officers.

 

Former officer who exposed false accounting declines share of payout after executives go unpunished

“We will hold senior executives liable when they misstate the company’s performance and fail to come clean with shareholders,” explained Andrew Ceresney, director of the SEC’s Division of Enforcement.

So why did the SEC not go after Deutsche’s executives? The most obvious concern is that Deutsche’s top lawyers “revolved” in and out of the SEC before, during and after the illegal activity at the bank. Robert Rice, the chief lawyer in charge of the internal investigation at Deutsche in 2011, became the SEC’s chief counsel in 2013. Robert Khuzami, Deutsche’s top lawyer in North America, became head of the SEC’s enforcement division after the financial crisis. Their boss, Richard Walker, the bank’s longtime general counsel (he left the bank this year) was once head of enforcement at the SEC.

This goes beyond the typical revolving door story. In this case, top SEC lawyers had held senior posts at the bank, moving in and out of top positions at the regulator even as the investigations into malfeasance at Deutsche were ongoing.

This took place on the watch of Mary Jo White, the current chair of the SEC, whose relationship with Mr Khuzami and Mr Rice dates back 20 years. She bears ultimate responsibility for the Deutsche fine.

In 2010 I joined Deutsche from Goldman Sachs as a vice-president in the market-risk department. I am a mathematician and had worked in risk-modelling at other banks. When I joined Deutsche I was not made aware that an internal “investigation” was already under way into the inflated valuation of the bank’s $120bn portfolio of exotic credit derivatives.

Within a few months, though, I realised something was very wrong, and I called the internal hotline. That is when I met Mr Rice. He was then Deutsche’s top lawyer for compliance and regulatory affairs, and asserted that our conversations were subject to “attorney-client” privilege and could not be disclosed. I did not agree and was fired. My Wall Street career was ruined.

When I first helped the SEC investigation, the whistleblower award was a powerful incentive. My lawyers and ex-wife have a claim on a portion of my award, which I am not at liberty to reject.

Although I need the money now more than ever, I will not join the looting of the very people I was hired to protect. I never intended to turn a job in risk management into a crusade, but after suffering at the hands of the Deutsche executives I will not join them simply because I cannot beat them.

I request that my share of the award be given to Deutsche and its stakeholders, and the award money clawed back from the bonuses paid to the Deutsche executives, especially the former top SEC attorneys.

I would then be happy to collect any award for which I am eligible.

 

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40 comments

  1. crittermom

    Powerful article.
    Eric Ben-Artzi may have ended his career on Wall St, but perhaps he should consider throwing his hat into a ring in the future? We could certainly use more people in govt with his morals. Wow.

    Thanks for the list of Senators. This does require action on our (citizens) part. We can’t let his efforts be in vain.

  2. KYrocky

    Sorry to sound like a broken record, but Mary Jo White is doing exactly what Obama expected of her.

    1. TheCatSaid

      Exactly. It seems with powerful appointments like this there is zero accountability within the existing “democracy” system we’re constantly being told is The Best In The World.

      What a sham.

    2. Vatch

      As a famous phony once said:

      “You don’t want to mess with Mary Jo”

      Needless to say, he didn’t mention who it is who shouldn’t mess with Mary Jo. It’s okay for the giant banks to mess with her all they want. She enjoys the attention.

  3. Katharine

    What do you do when honesty and simple decency no longer matter to people in power? It isn’t only that they are wrongheaded about some things, in the strange compartmentalized way that is apt to afflict all of us, but that they are wrongheaded about fundamentals: doing right doesn’t matter. Ben-Artzi’s action certainly ought to shame the SEC officials, but will it? And if not, then what?

    The problem is hardly restricted to this affair. The response to the burst bubble dealt after a fashion with harm done to the system, and more grudgingly with harm done to investors, but never with that done to the poor suckers who were cold-called by WaMu and its ilk and suffered the greatest harm of all. We do not have the justice the Constitution was supposed to establish, we have a system in which the members of the clique protect each other. That is not sustainable.

  4. Old Microbiologist

    Impeachment of her as well as anyone else implicit is not out of the realm of possibilities and could result in prison sentences. There is no time limit to impeachments and can happen during the next administration should that happen to be Trump. HRC will do nothing nor will Congress unless sufficiently motivated. It is a sign of the times but should they be impeached then all “deals” made by them can be repealed and we can actually start some serious prosecutions of these criminals. But, anyone who believes this will ever happen is delusional.

  5. TheCatSaid

    Wow. Inspiring and revealing. MJ White is showing where her true loyalty lies: to protecting the bigwigs of the financial sector she is supposed to be regulating. What an epic FAIL for citizens & shareholders who depend on the SEC.

    Thank you Yves for the contact details of the Senators best placed to call for meaningful enforcement.

    I’m glad Ben-Artzi spells out what a fairer remedy would look like:

    Although I need the money now more than ever, I will not join the looting of the very people I was hired to protect. I never intended to turn a job in risk management into a crusade, but after suffering at the hands of the Deutsche executives I will not join them simply because I cannot beat them.

    I request that my share of the award be given to Deutsche and its stakeholders, and the award money clawed back from the bonuses paid to the Deutsche executives, especially the former top SEC attorneys.

    I would then be happy to collect any award for which I am eligible.

  6. griffen

    This individual should be in high demand in his field, but unfortunately (for his employment potential) he is keenly aware of how the sausage factory works.

    His point about the shareholders paying is on the mark. The executives don’t pay and don’t seem to give a darn about it. So it goes.

    1. TheCatSaid

      I am coming to believe shareholders (retail and institutional) are like lambs going to the slaughter–but willingly and with their eyes wide open. They/we are refusing to believe the facts that are in front of our eyes. We are participating in willing self-delusion.

      I’ve seen too many situations where I’ve willingly deluded myself. Many have pointed out this is a society-wide dynamic. (E.g., an Israeli documentary-maker who discovered when recently visiting her growing-up home on an Israeli settlement that it was surrounded by several Arab villages, each with the call to prayer 5 times a day–but she never heard it until she returned with a different understanding.)

      We can complain about the vampire-squid financial system, but we’ve participated directly or indirectly, and it’s up to us to withdraw our approval and our participation. (And yes, that includes reconsidering pension & insurance “investments” until we find some different way of doing this that does not require “feeding the predatory beasts” with our own flesh and blood, and agreeing to theft from ourselves and others.)

      There are other options in this wide universe. It’s up to us to create/rediscover them. Not everywhere uses money, for example!

      1. IronButterfly

        ThatCatSaid,

        OK what are my options? I wholly agree with your proposal. I’d love to find alternatives for my pension investments. I, however, don’t know what my options are, or how to find them, or, finally, how to move my pension funds into them.

        1. TheCatSaid

          I learned a lot talking to the folks at M-CAM (based in Charlottesville VA). It didn’t cost me anything to talk to them and a learned a lot about different ways of thinking and doing. They developed an Integral Accounting module that was/is being used in 3 different MBA programs. They also have a private Purple Bridge fund, and they’ve developed different ways of analyzing innovation. (They also provided a new metric for innovation being used now by CNBC in their annual evaluation of innovation.) They think really differently, and they interact with the world in ways that are profoundly different. (Global Innovation Commons & Heritable Innovation Trust are two interesting things they do. There might be some mechanism to get involved.)

          Another source of information for me is using tools I learned from Perelandra about working with nature intelligence. I’ve read about others applying their tools in this way, too. I’ve done a lot of things that have transformed my understanding of things financial, and of how to act in a more balanced way. (One of the first things I learned, as part of the answer to my question to nature about a simple definition of money, was that money provides a means for us to energize our values and activities. Obvious, but profound and to this day it impacts how I use money–what am I choosing to support?) These new understandings have unfolded in a gradual way, with me getting new information as I take steps and develop a foundation grounded in new understandings. What this looks like will be unique for any individual, rather than a “system” of some kind. I learned about this in the “Perelandra Soil-Less Garden Companion”.

          While neither of the things I’ve mentioned may be right for you, I am certain that you will find pathways that are suitable if it’s an area of interest.

        2. TheCatSaid

          Regarding M-CAM, there’s a recent documentary called “Future Dreaming” that will expose you to some of their way of thinking. Some clips are here. You can also do a search for Integral Accounting. If you’re interested, call them and I’m sure they will find some novel way of interacting with you. Don’t make assumptions about what this might look like.

      2. VeganJ

        Where in the world do they not use money? It seems like anywhere in the world in the last 500 years that has developed a happy, fair, balanced society has been wiped out by the neoliberal imperialists who rule our country. There is no living/breathing alternative and that’s the way they will murder/kill/sanction/subvert to keep it.

  7. Robert NYC

    Nothing to see here, move along. This is how it goes in the world’s largest and most corrupt Banana Republic and Mary Jo White is doing exactly what she was expected to do by the establishment interests that put her there.

    This won’t stop until there is a real political revolution and that isn’t happening yet.

    1. perpetualWAR

      What many don’t realize is this political revolution is going to have to be violent, just like the French Revolution. TPTB are not going to just concede that they’ve been doing wrong without force…..and by the time it comes, it’s gonna be ugly.

      1. Mark Anderlik

        Sorry but a firm no to this. I say this assuming you are not a troll.

        The powers that be completely understand how to deal with a French Revolution situation. Security forces understand their own kind and tend to refight the last war.

        Our understanding of power has evolved from the rather crude desperation of those suffering from injustice and violence even 100 years ago. Power is much more fragile than what appears to be overwhelming military might.

        This comment betrays a misunderstanding of the fundamental sources of power, namely each individual organized with others. Time and again institutions and dictators fall from the withdrawal of the sources of their power by ordinary people.

        “We” outnumber “them” by a huge amount. “They” are more dependent on “us” than we are on them.

        When we wake up to realize the tremendous but unrealized power we do have, and are able to harness that power into organization with a nonviolent plan of action, we can not only “throw the rascals out,” we can begin to recreate institutions that better serve the needs of all at the very same time.

        Nonviolent action is superior to violence in many ways, but perhaps no more so than it demands that the means to the end are consistent with goals of the end itself.

        1. Randall Stephens

          @ Mark Anderlik:

          perpetualWAR is NOT a troll.

          You can believe it because I’m Randall Stephens, and I said so.

        2. crittermom

          perpetualWAR isn’t a troll.
          Just someone who has been fighting the banksters from stealing their home for 7 years and counting, so I can understand their feelings only too well.

          Not much has changed in the courts over all those years, despite all the proof of fraud and forgery. It’s still ‘business and justice as usual’ in favor of the banks.
          Millions of homeowners voices continue to be ignored in the courts, despite paperwork to back up their claims.

          The 700,000 signatures delivered to Obama by Bernie of those opposing the TPP wasn’t even a speed bump to Obama as he forges ahead full power. (And that was after Hellary said she opposed it, as well. ha, ha)

          The choices we’ve been given for our new leader have the lowest ratings ever (as humans?), while a choice of many was effectively silenced, as well as those delegates representing those who supported him.

          So how many millions of people is it gonna take screaming ‘foul!’ to force change within the govt?

          I don’t want to see war within our country.
          Yet many, many voices protesting have been ignored.
          So how do we make them heard?
          There must be a better way other than what we’re doing (obviously ineffective), or war.

          With those in power for each party having the same goals (personal wealth, screw the people), I don’t see much of a wedge coming between them to effect change for the people.

          Neither our country nor our planet can go on like this for even another decade–and possibly not even survive another term–without a change, but I don’t want to believe war is the answer, either.

          Sometimes I must bury my head in my pillow and scream.

        3. Robert NYC

          I would like to agree with you but you are stunningly naive! Look at Egypt for an excellent example. The Muslim Brotherhood came to power through legitimate means, mass support and political organization. More importantly they had dedicated themselves to non-violent resistance for over forty years. And where did it get them. I can give you other examples.

          Once one of these corrupt systems develops they control all the levels of power and rarely are such powers relinquished without violence.

      2. FluffytheObeseCat

        What many don’t realize is this political revolution is going to have to be violent,”

        This is hysterical BS. Brush the orange Cheetos-dust off your hands and get out of the basement. In recent decades violent “revolutions” in Ukraine, the Arab states, etc. have led to nothing but more of the same, with the side benefit of wrecked infrastructure. The longer historical record is likewise clear: nearly all political progress over the past 150 years, for the majority of mankind, was produced by nonviolent mass action. Civil disobedience campaigns in India and the American South. Nationwide strikes in both Western (1960s) and Eastern Europe (1980s). Fear of the masses is one of the few things keeping Chinese oligarch wannbes in line.

        This is why our concentrated, class-conscious elites are so aggressively contemptuous of things like the Sanders movement, and even Trump. They fear a resurgence of midcentury style democracy like nothing else.

      3. sid_finster

        Revolutions do not happen because the 99% overthrow the 1℅. The 1℅ will do whatever it takes to hang on to power.

        Revolutions happen when the 1℅ disagree amongst themselves.

      4. Jess

        You are correct. The way the scenario plays out is that the establishment resorts to massive violence whenever mass non-violent protest threatens to become too visible, too large, too enduring. That’s why they steamrolled Occupy in a coordinated nation-wide attack. Inevitably, the violence inflicted by TPTB generates counter-violence (even if only in a defensive manner) from the protestors. The final stage is when the military in the field decides whether it will kill (or continue to kill) its own fellow countrymen and women. The Soviet Union fell when Yeltsin convinced that tank commander not to fire on the protestors. With a short period of time, that same tank unit was shelling hard-line Commie holdouts in the Russian parliament.

        1. TheCatSaid

          “Inevitably, the violence inflicted by TPTB generates counter-violence (even if only in a defensive manner) from the protestors. ”

          The inverse is also true–pushing back strengthens the force one opposes. Push-back is inevitable.

          The trick is finding a different way to approach such situations, beyond the us/them opposition game. It’s possible to think bigger. The particulars will be different for each situation and individual.

          We’re not used to using those kinds of thought muscles–but it can be exhilarating to try out new things.

  8. Richard Davet

    “Although I need the money now more than ever, I will not join the looting of the very people I was hired to protect. I never intended to turn a job in risk management into a crusade, but after suffering at the hands of the Deutsche executives I will not join them simply because I cannot beat them.”

    Where are the shareholders in all this? Is this the Catch 22 at Deutsch?

    Shareholders must ultimately protect themselves. Let’s see the Board of Directors to get behind Eric Ben-Artz. Where is the corporate governance?

    Recall the Enron audit committee chair “nobody told me anything”. Being deaf, dumb and blind does not cut it.

    Lets see the shareholders throw the bums out.

    1. TheCatSaid

      Could part of the problem be that shareholders tend to be passive rent-seekers themselves, though of a lesser magnitude? I don’t think most shareholders take their ownership role seriously–understandably when it is so diluted. But that’s no excuse for giving up our power and responsibility. (Same thing as our potential to create change as “just” a citizen / voter. Passivity or disengagement will not create what we are looking for.)

  9. Sound of the Suburbs

    Letting bankers mess about with anything even remotely complex looks like a recipe for disaster.

    Before 2008, bankers told us that derivatives made the system safer by spreading risk through the system.

    After 2008 we found:

    James Rickards in Currency Wars gives some figures for the loss magnification of complex financial instruments/derivatives in 2008.

    Losses from sub-prime – less than $300 billion
    With derivative amplification – over $6 trillion

    “It’s nearly $14 trillion pyramid of super leveraged toxic assets was built on the back of $1.4 trillion of US sub-prime loans, and dispersed throughout the world” (“All the Presidents Bankers”, Nomi Prins)

    How do bankers fare with their bread and butter product, debt, which has been around for 5,000 years.

    Surely they understand that?

    “What is wrong with lending more money into real estate?” Australian, Canadian, Swedish, Dutch and Hong Kong bankers now

    “What is wrong with lending more money into the Chinese stock market?” Chinese banker last year

    “What is wrong with lending more money into real estate?” Chinese banker pre-2104

    “What is wrong with lending more money into real estate?” Spanish banker pre-2012

    “What is wrong with lending more money into real estate?” Irish banker pre-2010

    “What is wrong with lending more money to Greece?” European banker pre-2010

    “What is wrong with a NINA (no income, no asset) mortgage?” US banker pre-2008

    “What is wrong with lending more money into real estate?” US banker pre-2008

    “What is wrong with lending more money into real estate?” Japanese banker pre-1989

    “What is wrong with lending more money into real estate?” UK banker pre-1989

    “What is wrong with lending more money into the US stock market?” US banker pre-1929

    What could possibly go wrong?

  10. Science Officer Smirnoff

    . . . Now they seem mainly to be acting as professional liability shields. One way is via having outside firms rationalize questionable actions. The execs can say, “We relied on expert advice!” and they are off the hook. Benjamin Lawsky, the former Superintendent of Financial Services for the State of New York, started to tackle that issue by sanctioning outside consultants and law firms for providing liability cover in dodgy circumstances.

    That “model” behavior is much more powerful: Bush-Cheney cherry-picked lawyerly opinions* until they got what they wanted. John Woo was their man.

    See. Everything’s legit.

    *as they cherry-picked intel (and so it goes)

  11. shinola

    Sarbanes-Oxley? Seems like it might apply (but I’m no legal eagle).

    Has Sarb-Ox ever been enforced?

  12. Science Officer Smirnoff

    Please press them to conduct hearings on how the revolving door amounts to a protection racket for senior bank executives, and above all, the lawyers themselves that turned a blind eye to or actively enabled misconduct.

    Let’s generalize Yves’ question
    A very interesting issue for some time: what are the laws/forces in practice pressing against money laundering, finance of terrorism, tax evasion? That political bargaining behind the scenes broker protection of certain parties seems unavoidable. The technical means (NSA) and the laws have been there at least since Bush-Cheney.

    In short is there a (deep and wide) protection racket?

    Now sing with us the hymn, “Oh, love, how broad, how deep, how wide”.

  13. Science Officer Smirnoff

    correction:
    The hymn: “Oh, love, how broad, how deep, how high” !

    (of course)

  14. Richard Davet

    Eric Ben-Artz.may be delusional.

    I would advise him to hold his nose and take the money for his whistle-blowing. He can sleep soundly about that decision knowing that it is the shareholders who were served by his services.

    Unfortunately, shareholders have to suffer the consequences of management’s misdeeds to appreciate the fallacy in ignoring the errant behavior of management. Ben-Artz can take the money and put it under the column “professional services”—–this time well deserved.

  15. Stupendous Man - Defender of Liberty, Foe of Tyranny

    Mary Jo White as an “enormously effective prosecutor?”

    I don’t believe “deferred prosecution” is actually prosecution.

    This straight from the horses mouth:

    “In 1994, when I was a U.S. Attorney, I entered into the first-ever deferred prosecution agreement (DPA) with a company – a tool the Department of Justice frequently uses today. Essentially, a DPA is an agreement that the government will file a criminal charge, but defer its prosecution for a period of time during which the party must demonstrate good behavior and satisfy the other terms of the agreement. These terms can include very significant payments of money, enhanced compliance requirements, and sometimes an outside monitor.”

    Source: https://www.sec.gov/News/Speech/Detail/Speech/1370539841202

    Twenty-two years later and what we’re seeing is a longer term effect of the White engineered “DPA.”

    No matter how you try to define it, or condition it, or preface it, or slice it, “deferred prosecution” will also always include a lack of prosecution. I can’t think of anything that is more antithetical to a prosecutors job than not prosecuting.

    1. Yves Smith Post author

      I said she was an extremely effective prosecutor. That is true given her widely-celebrated role on Enron and her reputation among tough-minded ex DoJ staffers who worked with her like Neil Barofsky. Her coming up with deferred prosecution agreements is not inconsistent with that. As a lawyer, you want more options for resolving cases. And the problem with DPAs is that they’ve come to be a joke. In concept, they could be used to keep miscreants on a very short leash. They are flawed solely because we operate in a world of non-enforcemnt. You forget that in 1992, the Fed forced the resignation of the CEO, vice chairman, general counsel, and another senior executive, so regulators were not the stooges back then that they are now.

      The fact that she can be effective does not mean she will choose to be effective. Litigators, even more so than regular attorneys, pride themselves on being able to argue both sides of the case.

  16. craazyman

    fukk this is like something out of the Bible New Testament or Dante’s inferno.

    People think the Bible and especially the New Testament is a bunch of crackpot lunacy. Especially all the stuff about taking care of your soul – that’s mostly New Testament stuff.. Especially that. Thhey think to themselves “Well it sounds good in theory, but c’mon. In practice you have to get what you can”. That’s the way most people think.

    Then they ask themselves “Why is there so much injustice in the world?” As if it’s a question without an obvious answer. Then when in comes time to answer it they pre tend the question was never asked, and they ignore it.

    The problem with heaven is it sounds too boring. Who wants to live in the clouds and wear togas while angles strum melodies on harps. Not me. That sounds almost like hell. I’d rather have youtube and have some red red wine. Now the muslim lunatics make heaven a little better with all the virgins, but even that would get old after a few hours ad you’ve got billion of years to kill. At any rate, I still to think there will be a payoff in the final day for individuals who elevate consciousness and conscience. People may think this is not objective enough to be identifiable. But that isn’t the way this plane of existence works. It is an absolute. I don’t know what the payoff will be, but I do know the price of acting without a conscience and without consciousness of one’s actions — and that is hell. Why people can’t feel it, they can’t feel the hell they create in their darkness of spirit and in their blindness and in their greed — that I don’t understand. It seems so obvious, just a easy as opening a door.

    But as the New Testament says, “Enter ye in at the strait gate: for wide is the gate, and broad is the way, that leadeth to destruction, and many there be which go in thereat:.Because strait is the gate, and narrow is the way, which leadeth unto life, and few there be that find it.” –Matthew 7, 13-14

  17. DavidTC

    He should take the money…and spend all of it left over after taxes on running ads explaining what happened.

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