Monday, August 15, 2011

Who Really Is The “Original Gangsta”?

Media and political elites seem to get the public riled up about looting during a riot. The visual imagery is stunning as spin doctors sharpen what the public understands.

But ask yourself, are you being played?

Look closely at the world of looting.

Who actually stole the most?

In England, ‎the better question might even be: who hasn't looted?

Didn’t we just read about MPs cheating on expense accounts or police taking bribes? Didn’t we just read about journalists hacking phones? And are we not in a devastating recession because wealthy bankers swindled beyond what anyone could count? Big picture, looters taking a pair of running shoes or a TV set seem like small potatoes.

All the retail looting in the world combined would not even come close to what Wall Street looted.

In the words of one English rioter: who really is the “original gangsta”?

* * *

By accusing street looters, it’s easy to deflect from wealthy looters who have irreparably ravaged our economy at great scale (with whom politicians have a great conflict of interest).

Political crisis managers know how the public understands a ruined material world far better than the banker’s world of financial paper where looting $1 million is small potatoes. Laws may protect the bountiful but not so much the deprived who become easy political pickings for justice.

Perspective: If magazines can cause anorexia, dare we ask if advertisers can cause looting?

The public and politicians will see what they want to see.

Seeing someone break glass is a lot easier than seeing someone stealing paper.

In The Big Short, best-selling author Michael Lewis references one banker who made $100 million literally ripping off the poor. Bankers facilitated so many fraudulent deals that even they couldn’t tell what was going on. And somehow, they get a get-out-of-jail-free card (if not a bailout as well). That’s because our economic recovery depends on these wealthy weasels. The money machine doesn’t work without them.

Show me the money!

If you ever wonder why they don’t chase after 1000 corrupt bankers with the same zeal as 1000 London rioters, this is why.

It’s far easier to get away with stealing $1 million or $1 billion than stealing a pair of running shoes. Politically, the media and public instantly get outraged when material possessions are stolen or damaged. But what the Federal Reserve did remains a mystery.

You can even write a book about financial travesties – rampant fraud – on Wall Street like Michael Lewis did and it won’t even lead to charges being pressed.

Why – because the world as politicians know it would break down if all these wealthy crooks were jailed.

The tragic irony: By punishing all Wall Street fraudsters– who punished us into recession—we’d be punishing ourselves even further. We depend on these fraudulent looters for our economic recovery.

“When you’re a conservative Republican you never think, people are making people money by ripping other people off” ~ Steve Eisman (The Big Short, Michael Lewis)

You may debate whether or not the folks who looted financial sectors caused the "underclass" in London to riot but one thing is amply clear. Financial sector looters wreaked far more havoc on our lives. The damage they caused is immeasurable.

* * *

Imagine a culture – of not just greed – but of people ripping people off to make money. Imagine if this is what the majority did on Wall Street. Almost every major bank had a hand in it. This was the complicit culture of Wall Street that spun us into a horrible recession.

And who were the first victims of these wealthy looters? Poor folks who never even had a chance to repay loans (with fraudulent interest rates). The next victims were investors of these loans who were led to believe they were profitable but in reality were just investing in deferred bad debt. Many of these investors were even guaranteed by the government – another oblivious victim, now in a debt crisis.

Accounting can do funny things to the eye. It can allow someone to loot without breaking any glass.

Sub-prime Mortgage = House of $

* * *

For a few years, I’ve been involved in a case where $1 million was put into severe jeopardy by directors.


Relative to other financial cases, $1 million doesn’t even register on the radar. But the mechanics of any bad money trail have common denominators. And this is what I saw.

The laws are actually very clear – Criminal Code and Civil Law. There was no doubt how they could be applied to what went wrong. The realities, however, of applying them are murky.

Unlike charges for a stolen tv, theft/fraud cases involving money or paper take years to prosecute. You only read about a few cases succeeding - after many years of legal pursuit where lawyers are paid a handsome fortune.

You can see how it is almost too easy for folks to steal money from a corporate bank account, mislead investors or disappear with corporate assets.

Regulators, politicians and prosecutors might give the public a piñata to focus on like Lehman Brothers (re: no bailout) or Bernie Madoff. But do we ever ask, what ever happened to the rest?

World's largest piñata - like a Trojan Horse

Your chance to hit the ass while blindfolded

Economic advisors will say we depend on many of these culprits to re-vitalize the economy and some of these grease balls need to be bailed out to grease the economic engine. Economic crimes this vast need to be kept under the carpet for the money machine to work again.

"Please allow me to introduce myself
I'm a man of wealth and taste"
"But what's puzzling you is the nature of my game" ~ Sympathy For the Devil

Even if every wealthy looter was pursued, it’s not nearly as easy as convicting an 11-year-old East London boy in England for stealing a garbage can during the London Riots.

A fraud police officer tells me how difficult it is to chase even someone who brazenly takes $1 million from a corporate account.

For a fraud or paper theft to be processed, one would need documents to prove who owned the money or assets. And who had rights to the property and money and in what capacity to appropriate them. These are typically documents white collar criminals keep hidden away. Confidentiality agreements keep almost anyone from sharing them.

Without whistleblowers, like Enron had, the victims seldom have access to these documents. That is, the wealthy looter can keep the evidence hidden to maintain their looting interests. All they have to do is hide proof from the victim(s).

Wrongful document destruction was only recently made easier to prosecute. But it is still not easy. You can argue stupidity or bad judgment as a defense.

Forensic accountants and lawyers would need to file reports proving ownership, theft, fraud and/or misrepresentation. This might add up to more than $100,000 in fees. Unlike a store burglary, it’s not good enough to just say “our money/assets” have gone missing--even if you know who did it and where the proceeds of the white-collar crime are.

Legal processes go a long way to safeguard the wealthy looter.

The 1st legal issue is typically: Who is in charge of this issue? Geographic and legal jurisdictions are not simple to prove:

1) Where can you prove the crime took place?
2) Where do you reside as a victim?
3) Where is the paper trail (lawyers, HQ, corporate registry) located? Or worse, where is the digital trail?
4) Where does the suspect reside?

Borderline Crime - Who's jurisdiction?

The criminal code is typically different in every jurisdiction. Likewise for civil laws.

Regulators also have the same jurisdictional issues and legal quandaries to consider. The line up for financial complaints is long. We can only wish for the same zeal politicians have for stolen merchandise be applied to missing corporate assets valued at more than $1 million.

The burden of proof can get ugly. You first have to prove you even have the right to chase after this looter. Is it your role as an investor/stakeholder or a company officer’s role?

The sophisticated wealthy looter will also stonewall you and cost you a fortune in legal fees (after they use proceeds from crimes to cover their legal fees). Some billionaires have enough wealth to take on the Government of Canada.

Who else can bill $500 an hour to read emails?
You don't need a lawyer, you need a hostage negotiator!

There’s far greater means to defend, stall or hide a white-collar crime. For victims, the court of public opinion might end up being a far better alternative to civil or criminal court costs.

I believe we’ve only seen the tip of the iceberg when it comes to wealthy looting. Just ask yourself how many have been desperate to preserve their lifestyle (the only world they know).

Politicians depend on wealthy contributions for campaign donations and economic recovery. We've seen Britain's PM bandying a buzzword like “criminality” for the London Riots, but notice how rare it's applied to the financial sector.

This would be more realistic if the people behind the PM wore pinstripes

But let’s take it down a notch closer to home. I recently read a fascinating article about corporate looting by employees.

The article illuminates everyday forms of corporate looting such as using company telephones to call your spouse or electricity to charge your phone:

Admit it: How many people do you personally know took a hotel towel?

I recently heard an ingenius way of taking from a hotel mini-bar without getting caught. You just go to 7-11 or the liquor store next day (buying items at a lower cost) and replace everything you took. There’s a lot of thinking like this in financial sectors. The devious might even take from one mini-bar (breaking into an unguarded room) to fill up another mini-bar.

One grocery store chain owner decades ago wrote in his memoir staff theft impacted his bottom line by 30%: Why his chain went out of business.

A flight attendant at an airline confided that the cash till sometimes doesn’t balance and staff do get investigated for looting. Airline attendants are severely underpaid and often hold multiple jobs. Not that this is what causes looting.

So before casting stones at so-called “looters,” ask yourself who hasn’t looted? And who looted far more. I honestly don't know of a single person who hasn't broken the law (speeding, jaywalking etc.). I still can't figure out how the media determines what is a serious theft and what they can skip over.

At sentencing, I think many retail looters would prefer the deal Wall Street got. Just hope you don't meet a judge like this who figured out a way to make money sending kids to jail for minor infractions:

Unfortunately, the poor looter likely won’t be as lucky as the wealthy looter. Inequities are not just the cause of looting, but they also determine who gets away.


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