If
You're Going to Do Something Illegal in America, Do
Something Spectacularly Illegal
19 July 2010By Dave Lindorff
If you want to avoid facing a tough prosecution for
malfeasance, be a banker, not a biker.
That appears to be the lesson of Saturday’s Wall
Street Journal, where the lead story was about how
Bank of America repeatedly hid its massive bad debt
holdings from regulators and investors through a
creative accounting device called “repurchase
agreements.” A second story just above the fold told
how US Food and Drug Administration prosecutors are
“Casting a Wider Net” investigating the use of
steroids by competitive cyclists.
According to the BofA story, the bank, during a
Securities and Exchange Commission investigation into
the real financial condition of the nation’s biggest
financial institutions, admitted that at the ends of
all the quarterly reporting periods from 2007 through
2009, it had used repurchase agreements, or “repos,”
to temporarily shed bad debt before drawing up and
releasing its required public filings. That is to say,
the bank lied about and hid from view its weakened
liquidity position all through the financial crisis.
Astonishingly, the Wall Street Journal article reports
that this practice, known euphemistically in financial
industry parlance as “window dressing,” is “not
illegal in itself,” unless it is done with the intent
of misleading investors. The article is quick to note
that “BofA said its incorrect accounting wasn’t
intentional.” (The newspaper didn’t go to the SEC or
to any independent source such as an academic expert
or lawyer for comment on this laughable whopper.)
Every three months, BofA was transferring
mortgage-backed securities briefly to a trading
partner in return for a simultaneous agreement to
repurchase similar securities from the same partner,
once the required SEC filing had been shipped out in
the mail. As the Wall Street Journal’s reporter
Michael Rapoport writes, “The practice amounts to a
bank renting out its balance sheet for short periods;
the bank gets fees, and the client on the other end of
the trade gets short-time cash.”
If this kind of thing is not deliberate fraud I don’t
know what is. Yet the bank, in its statement to the
Wall Street Journal, claims the “effort to manage its
balance sheet” was “appropriate” and that the intent
behind the shell game was not to mislead investors or
regulators, but rather was “to reduce the specific
business unit’s balance sheet to meet its internal
quarter-end limits for balance sheet capacity.”
How’s that for financial mumbo jumbo?
It would be interesting to see how well an ordinary
citizen would fare if he or she used a “repo” type
strategy to hide half his or her income from the IRS.
The equivalent scam might involve “donating” half of
one’s income on December 31 of the tax year to an
accommodating charity and then taking the money back
on January 1 of the next year--and afterwards, if
audited, claiming that the fraud was “not
intentional.”
But hey, it works for the banks. The article goes on
to report that, “Apart from requiring more disclosure
about its repo accounting, the SEC hasn’t taken any
action against BofA over the matter. The fact that the
[BofA] letter [to the SEC] was released suggests the
SEC has concluded its review.”
Meanwhile, even as BofA and other financial behemoths
get away with accounting murder and are held harmless
after their crooked dealings brought the US and the
global economies to their knees, we’re informed that
FDA legal bloodhounds are doggedly stepping up their
investigation into illegal steroid use by US cyclists
involved in the current Tour de France bicycle
competition. The FDA is reportedly hoping to get some
participants to turn in competitors who are using
illegal substances to enhance their physical
performance.
In this fishing expedition, the FDA, according to this
second Wall Street Journal article by Reed Albergotti
and Vanessa O’Connell, is not out to prosecute
rank-and-file riders, but rather wants to bring
charges against “any team leaders and team directors
who may have vacillated or encouraged doping by their
riders.”
On one hand, the US government sees it as critically
important that cycling be kept clean of drugs so
Americans on their sofas and Barcaloungers will know
the winners really deserved to win. On the other hand,
the government does not think it’s very important for
Americans to know the bank where they put their
savings, or in whose artificially inflated stock they
have invested their IRA or 401(k), is cooking its
books.
The government feels it is critically important to
know that those who encourage the use of performance
enhancing drugs--the big guys, in other words--will be
prosecuted to the full extent of the law, but it is
not so important that the top executives who caused a
financial collapse that has pushed real unemployment
and underemployment to nearly 20 percent, collapsed
the housing market and put school districts and state
and local governments on the brink of bankruptcy, be
called to account -- and made to do jail time or to
perform community service--for their fraud and deceit.
This juxtaposition is rendered all the more absurd by
the fact that the FDA isn’t even able to come up with
a significant charge to bring against the alleged
dopers in its intensifying investigation of the
cycling sport. As the Journal notes, “Federal
investigators are exploring several avenues” for
possible prosecution, including “whether teams
defrauded sponsors by failing to race cleanly,” or
whether US Tour de France multiple winner Lance
Armstrong’s US Postal Service team might have “misused
federal funds.”
It’s the old, “miserable” story: Steal a loaf of bread
for a family and you go to jail. Deceive national
regulatory authorities and steal from a generation of
pension investors and you get a Troubled Assets Relief
Program (TARP) handout of billions of dollars in
taxpayer funds.
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