Fresh from releasing his exhaustive and excellent Year In Review last week, Dave Collum sits down with Chris to discuss the key developments of 2012 in detail.
One area they focus on in particular is how 2012 appears to be the year when consequences died for criminal acts by the powerful and connected. MF Global, HSBC, LIBOR-gate — the lesson from these broad-daylight scandals seems to be that, IF you’re punished, the worst you’ll experience is a fine that’s a mere fraction of the profits earned from your crime:
Dave Collum: Corzine is a particularly problematic case, because Corzine, while being investigated, was bundling funds for Obama, and Obama’s Justice Department was in a terrible conflict. They should have shut down the bundling at the very least for the optics. They did not. In the end they dropped the charges against Corzine. They never gave immunity to his second in command. If you get immunity, you not only cannot be charged but you are forced to testify. You cannot plead the fifth. If they had taken the second in command and said you have immunity, now spill your guts, Corzine would be in jail now, I think. That is my guess. We certainly would know what happened. They do not want Corzine. He is too connected.
Chris Martenson: This is an interesting sort of theme, that if you are connected enough some sort of a story is made up. What just came out recently was this whole story around HSBC. They got caught laundering billions and billions of dollars for drug cartels. You and I know that as a private citizen, if you are just driving down the road and you get pulled over and you have cash in your car, no matter how much you can prove it is yours the police can still seize it and hold it. They can force you to prove that it is not illegal. Even in some cases that is not sufficient, with some test cases we have out there. HSBC gets absolutely nailed. The Justice Department swoops and declines to press any criminal charges because I believe the quote is “They worried that it might prove to be systemically bad for the bank to have any sort of charges laid against them.” What is going on here?
Dave Collum: It is funny. I had to wrap my Year in Review at some point. As you know, I had to get it in a little earlier this year than we anticipated. On that particular point, I stated, that at the point I uploaded it to you, that it is said that HSBC could be charged as much as 1.5 billion. That is peanuts for the kind of crime they committed. There could also be criminal charges. In the review I said yes, there could be, but there will not be. About two days later they said that there would be no criminal charges.
I think HSBC actually inherited the BCCI (Bank of Credit and Commerce International) clientele. I said that somewhat facetiously, but not totally. The BCCI collapsed in the 1990s. That released an awful lot of dark clients, CIA and various intelligence agencies, the drug cartels, you name it. Anyone who wanted to do nefarious things with the banking system was there. It was a huge bank. They went belly up. They went somewhere. I think they went to HSBC. Now they got caught.
Chris Martenson: That could be. The thing that is mysterious to me is that every so often they will trot out pictures of cash and say they found $25 million. As you and I know, the actual global drug trade is over one trillion dollars. Ninety-nine percent of that gets laundered back through the banking systems somehow. The idea that this is vaporized, difficult to track, or unknown is ridiculous to me. When finally something does happen where somebody gets caught – HSBC in this case – the idea that no criminal charges are coming is another sort of statement. It is the same statement.
The reason I am connecting this right here is that while Jon Corzine is doing things for very politically powerful people – in this case you mentioned the bundling of funds for Obama – HSBC also must have had some very powerful clientele within that roster of things. The next thing you know, there are no charges that get filed. I understand this is kind of how the world works a little bit. It is so pervasive, so in-your-face, and so outrageous that I feel this growing gap between what you and I as citizens are expected to comply with on a yearly basis under penalties that are fairly swift and certain if we fail to, and what the institutions seem to be able to get away with. My perception, and maybe I am getting cranky in my older age, is that this seems wider than it has ever been to me.
Dave Collum: It has gotten so blatant that they do not seem to feel the need to hide it. I think if the BCCI scandal broke now that nothing would happen. There is a great example. They got caught doing all of these things that HSBC got caught doing. That bank imploded because the curtain got pulled back too far. They could not put the scandal away. I think a lot of the things in the past that caused trouble would no longer cause trouble now. There is no penalty. They are temporary regulators or something. They are just waiting for their job on Wall Street. They have gotten no one. They have convicted no one of anything that I can tell. I know of no instance.
Chris Martenson: I think the one story they have managed to get away with, and they used it again with HSBC, is the too big to fail. That is their story. If we somehow collapsed HSBC, this would be systemically awful. We are in such perilous times right now that we cannot afford to even test that theory out. Therefore we cannot press criminal charges because somehow holding a few people responsible at a giant institution like HSBC would cause it to collapse or something. I am not quite clear on what the story line is. It does not really hold water to me. It looks more like excuse-making than a solid rationale by any decent measure.
Dave Collum: They almost do not even say that now. I am not even hearing that. I am just hearing that it goes away. They have even stopped making fake excuses. It just goes away. They said we cannot get Corzine and we cannot get HSBC. We cannot get these guys. They do not give an explanation. This is some form of Stockholm syndrome, where you start enabling your captors. I think at some point this all comes to a head. I think these guys should be careful. They have decided that the rule of law is not important. If that is the case, then they might suffer the consequences of no rule of law. I think we are heading for a problem. We are going to have a showdown at some point, or we are heading for a much more closed society and more corrupt society.
Beyond this, Chris and Dave discuss resource depletion, the box the Fed is in, and the future price direction of stocks, bonds, gold and the dollar.
Click the play button below to listen to Chris’ interview with David Collum (54m:37s):
Chris Martenson: Welcome to another Peak Prosperity podcast. I am your host, of course, Chris Martenson.
This week we welcome Dave Collum to the podcast. For those of you unfamiliar with Dave, he is a professor of chemistry and chemical biology at Cornell University, the place I got my MBA from. In addition to his academic interests, Dave authors an annual macroeconomic assessment titled “Year in Review.” It is hands-down the best synopsis of everything that mattered during the previous 12 months. If you want to read it, it is at [PeakProsperity.com]. You can find it. It is around there. It … read more
Images: Flickr (licence attribution)
About the Author
Executive summary: Father of three young children; author; obsessive financial observer; trained as a scientist; experienced in business; has made profound changes in his lifestyle because of what he sees coming.
First of all, I am not an economist. I am trained as a scientist, having completed both a PhD and a post-doctoral program at Duke University, where I specialized in neurotoxicology. I tell you this because my extensive training as a scientist informs and guides how I think. I gather data, I develop hypotheses, and I continually seek to accept or reject my hypotheses based on the evidence at hand. I let the data tell me the story.
It is also important for you to know that I entered the profession of science with the intention of teaching at the college level. I love teaching, and I especially enjoy the challenge of explaining difficult or complicated subjects to people with limited or no background in those subjects. Over the years I’ve gotten pretty good at it.
Once I figured out that most of the (so-called) better colleges place “effective teacher” pretty much near the bottom of their list of characteristics that factor into tenure review, I switched gears, obtained an MBA from Cornell (in Finance), and spent the next ten years working my way through positions in both corporate finance and strategic consulting. From these experiences I gather my comfort with numbers and finance.