Securities and Exchange Commission Failed to Stop Bernie Madoff Fraud

November 11, Washington Post – (National) Eight SEC employees disciplined over failures in Madoff fraud case; none are fired. The Securities and Exchange Commission (SEC), which failed to stop a long-running investment fraud despite repeated warnings, has disciplined eight agency employees over their handling of the matter but did not fire anyone, reported the Washington Post. The SEC’s head of human resources and a law firm hired to advise the agency had recommended the chairman fire one person, whom the SEC described as a manager in the office that inspects investment firms. But the chairman did not fire the worker because doing so "would harm the agency’s work," a SEC spokesman said.

The Washington Post reported November 11 seven SEC employees had been disciplined, based on details provided by a person familiar with the actions. A second source, an official involved in the process, told the Post the chairman had received recommendations to fire an employee over the mishandling of the case. Later November 11, the SEC spokesman confirmed details and added that an eighth employee also received disciplinary action. A ninth employee, who was facing a 7-day suspension, resigned before disciplinary action was taken, the spokesman said.

 

The punishments given the SEC employees varied and included suspensions, pay cuts, and demotions. Although the SEC conducted five examinations and inspections of the hedge fund manager based on complaints, agency personnel "never took the necessary and basic steps to determine if [he] was misrepresenting his trading," the inspector general reported. "While examiners and investigators discovered suspicious information and evidence and caught [the manager] in contradictions and inconsistencies, they either disregarded these concerns or relied inappropriately upon [his] representations and documentation in dismissing them," the inspector general added.

 

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Source: Washington Post via Homeland Security Daily Open Source Infrastructure Report

U.S.-Japanese Relations before WWII

By Percy L. Greaves Jr.

 

Relations with Japan had been strained for some time. The Roosevelt administration was fully aware of Japan's dependence on imports. Yet, as we have seen, it had terminated America's long-standing commercial treaty with her. After January 1940 Japan had to ask permission on a case-by-case basis whenever she wanted to import from the United States. In July 1940 the administration had further prohibited exports to Japan by requiring her to get a license to purchase aircraft engines and strategic materials. (When sale of aviation gas, defined by the United States as 86 octane or higher, was embargoed on July 1, 1940, she had contrived a way to use 76 octane in her planes.) The administration was tightening an economic noose around Japan's neck bit by bit, forcing her to look elsewhere for the supplies and materials she had been accustomed to buying from the United States.

 

The Japanese had considerable commercial interests in Southeast Asia, especially in French Indochina (now comprising the states of Vietnam, Laos, and Cambodia). After France fell in June 1940, Japan had negotiated with the Vichy government of unoccupied France for permission to occupy French Indochina, to take over bases there, and to maintain order. The rather helpless Vichy government had agreed. As trade with the United States became more difficult, Japan's interests in Indochina gained in importance and she turned more and more in that direction for the foods and raw materials she needed. Trade pacts concluded later with Indochina assured Japan of uninterrupted supplies of rice, rubber, and other needed raw materials.

 

US Ambassador Grew in Japan kept Roosevelt fully advised of her precarious economic situation and urgent need for imports. Chief of Naval Operations (NCO) Stark had warned the president of the danger of imposing an oil embargo on Japan. Stark had "made it known to the State Department in no uncertain terms that in my opinion if Japan's oil were shut off, she would go to war." He did not mean… (Read more)

 

Source: Mises.org

Understanding the Price of Money

By Robert P. Murphy

 

In a money economy, the money commodity is on one side of every transaction, and hence reduces the number of relevant prices. The direct exchange ratio between any two commodities can easily be computed from their respective money prices. The "price" or purchasing power of money is the array of goods and services for which a unit of money can be exchanged.

 

Individual supply and demand schedules in a money economy are determined by the same principles applicable to a barter economy. An individual's value scale contains units of the money commodity as well as all other commodities and services, and the individual will engage in market exchanges to achieve the bundle of goods (including units of the money commodity) that he or she believes will yield the greatest utility. There have been various attempts to gauge the total "surplus" that individuals enjoy from the existence of markets, but these procedures suffer from methodological errors. Individuals benefit from voluntary exchanges, but it is nonsensical to ask how much they benefit, because utility is not a cardinal magnitude.

 

The utility from selling a good for money is the value of the most highly ranked use to which the additional money can be devoted (whether to… (Read more)

 

Source: Mises.org

The Free-Market Economics of the Late Scholastics

By Tom Woods

 

Since the mid-20th century, historians of economic thought have directed more and more attention to the contributions and influence of the Late Scholastics — Catholic theologians, often Spanish, of the 16th and 17th centuries. In his History of Economic Analysis (1954), Joseph Schumpeter paid special tribute to the importance of the Late Scholastics. "It is they," he wrote, "who come nearer than does any other group to having been the 'founders' of scientific economics."

 

Raymond de Roover expanded on Schumpeter's observation, writing a series of pathbreaking articles for academic journals on the subject of these neglected figures. De Roover punctured substantial holes in the received view of late-medieval and early-modern economic thought, particularly when it came to the subject of the just price. Prior to de Roover's work, the Scholastic conception of the "just price" had been grotesquely misinterpreted; the Scholastics were said to have believed that certain objective criteria could help determine a good's "just price." To the contrary, de Roover showed, for the Scholastics the just price was the market price, the price arrived at by the interaction of buyers and sellers on the market. (This statement was subject to a proviso: if the state should impose a price, the state-imposed price would be considered the just one. Even here, though, some of the Scholastics remained skeptical of nonmarket prices and of the state's ability to ascertain and impose an objectively just price.) Previous work in this area, de Roover showed, had placed altogether too much emphasis on the idiosyncratic views of the relatively unimportant Heinrich von Langenstein at the expense of the broader consensus of the Scholastics and canonists.

 

The view of medieval economic thought held by 19th- and 20th-century romantics and corporatists, in which theologians encouraged the setting of "just prices" by the public authority and recommended the guild system as a vehicle for promoting justice for buyers and sellers alike, did not survive de Roover's reevaluation. On the latter point, it turns out that… (Read more)

 

Source: Mises.org

Obama Administration Releases October Housing Scorecard

WASHINGTON - The U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of the Treasury have released the October edition of the Obama Administration's Housing Scorecard – a comprehensive report on the nation’s housing market. The latest housing data offer continued mixed signals as new home sales rose compared to August, but were still slightly down from the prior year. Mortgage defaults and foreclosure sales continued a downward trend as more homeowners were able to secure mortgage relief. However, foreclosure completions ticked slightly upward in September after months of decline.

 

Also, beginning this month the Housing Scorecard will capture data on the Administration’s Home Affordable Refinance Program (HARP). The Federal Housing Finance Agency recently announced efforts to ease refinance guidelines for homeowners. The full report is available online at www.hud.gov/scorecard.

 

HUD Assistant Secretary Raphael Bostic said “The housing data in this month’s Scorecard illustrate how complex the market is and why the Obama Administration has chosen a variety of approaches to help spur recovery. Last month we saw a continued fall in mortgage defaults, due in part to our foreclosure prevention programs reaching more borrowers upstream in the process.  And in the last quarter, a million more homeowners refinanced their loans under some of the lowest interest rates in history. But despite these signs of progress, we have much more work to do to reach the many households who still face trouble and to help the market recover. To help responsible homeowners, we have to make it easier for people to refinance at interest rates that are now near 4% – putting hundreds of dollars in real savings back in their pockets each month, and giving a boost to our fragile economy.”

 

"The Administration's programs continue to provide some of the most sustainable assistance available to tens of thousands of struggling homeowners every month," said Treasury Assistant Secretary for Financial Stability Tim Massad.  "The standards we have set are changing the industry and indirectly helping millions of additional families."

 

The October Housing Scorecard features key data on the health of the housing market and the impact of the Administration’s foreclosure prevention programs, including:

•The Administration’s recovery efforts continue to help millions of families deal with the worst economic crisis since the Great Depression.  More than 5.3 million modification arrangements were started between April 2009 and the end of September 2011 – including more than 1.7 million HAMP trial modification starts, more than 1,064,000 FHA loss mitigation and early delinquency interventions, and more than 2.5 million proprietary modifications under HOPE Now.  Many of these modifications are a direct result of the standards and processes the Administration’s programs have established. While some homeowners may have received help from more than one program, the total number of agreements offered continues to more than double the number of foreclosure completions for the same period (2.3 million). More than 850,000 homeowners have received a HAMP permanent modification to date, with a median payment reduction of over $520 each month.

•Even as new delinquencies continue to fall, eligible homeowners entering HAMP have a high likelihood of earning a permanent modification and realizing long-term success. Eighty percent of eligible homeowners entering a HAMP trial modification since June 1, 2010 received a permanent modification, with an average trial period of 3.5 months. After six months in the program, more than 94 percent of homeowners remain in their HAMP permanent modification. Homeowners in HAMP permanent modifications have saved an estimated $8.8 billion to date.

Triton President and CEO Kurt Barton Sentenced to Federal Prison

The United States Attorney’s Office announced that in Austin today, 44-year-old Kurt Branham Barton, founder, president, and CEO of Triton Financial, L.L.C., was sentenced to 17 years in federal prison followed by five years of supervised release for carrying out a Ponzi scheme which victimized more than 300 individuals and resulted in a total estimated loss to investors of over $50 million.

In addition to the prison term, United States District Judge Sam Sparks ordered that Barton pay restitution in the amount of $63,707.496.

On August 17, 2011, a federal jury convicted Barton of conspiracy to commit wire fraud, making false statements to secure loans from financial institutions, and money laundering, as well as multiple substantive counts including one count of securities fraud, 15 counts of wire fraud, five counts of making a false statement related to the acquisition of loans, and 17 counts of money laundering.

Evidence presented during the eight-day trial revealed that from December 2005 and December 2009, Barton devised a scheme to obtain money from investors under false pretenses. Barton represented to investors, including members of the defendant’s family, members of the Church of Jesus Christ of Latter Day Saints, business leaders, as well as professional football players, that Triton was purchasing properties, businesses and other assets with their funds when, in fact, he was using their money to satisfy the needs of other ventures and the need to pay quarterly dividends or redemptions to prior investors. Testimony also revealed that Barton used prominent former National Football League players and Heisman Trophy winners to solicit and encourage additional investors. To conceal his scheme, Barton presented fabricated and fictitious versions of his E*Trade monthly account statement to financial institutions, commercial lenders and potential investors.

“Mr. Barton’s scheme adversely affected the lives of many investors who trusted him with not only with their money but with their faith also. His reckless actions were driven by greed and selfishness as he continued to seek out more victims to perpetuate the misery to others and supplement his extravagant lifestyle. The other victims in this tragedy are the reputations of the retired National Football League players, who Mr. Barton used to market his company and then recruit more victims for his Ponzi scheme. The FBI warns all investors to highly scrutinize investment opportunities where the return seems extremely high and too good to be true,” stated FBI Special Agent in Charge Cory B. Nelson.

IRS Criminal Investigations Special Agent in Charge Steve McCollough reminds investors that “they should diligently check out claims of unusually high rates of return like those posed by Barton and DiMeglio before investing. Investors should not blindly follow the advice of any one person, always get a second opinion.”

“Today’s sentence concludes a very trying and devastating time for a great number of investors. The story of this case should be a great reminder to potential investors that the old adage ‘if it sounds too good to be true, it probably is,’ still holds true. We hope today’s sentence will serve as a deterrent and a warning—those who engage fraud will be prosecuted to greatest extent that the law allows,” stated Texas Securities Commissioner Benette L. Zivley.

This investigation was conducted by the Federal Bureau of Investigation and the Internal Revenue Service - Criminal Investigation together with the Texas State Securities Board. Assistant United States Attorneys Mark Lane and Jennifer Freel prosecuted this case on behalf of the government.

How to Fix the Housing Crisis

By Doug French

 

The foreclosure crisis has crawled on for going on four years now with no end in sight. The S&P/Case-Shiller index for August fell 3.8 percent from a year ago. The index includes home prices for 20 US cities.

 

"Continued house price declines could lead to even more defaults, foreclosures and distress sales, undermining wealth, confidence and spending," William Dudley, president of the Federal Reserve Bank of New York said. "Breaking this vicious cycle is one of the most pressing issues facing policy makers."

 

Every one of the Republican presidential candidates is being asked how they would handle the slow-motion housing wreck. Long shot Newt Gingrich says he would rewrite the rules to make it profitable for banks to renegotiate loan principal amounts.

 

"He disagrees with his Republican colleagues that the free market will find a fair way to let the banks and homeowners work things out," writes Karoun Demirjian for the Las Vegas Sun.

 

President Obama has jumped in to adjust Fannie Mae and Freddie Mac rules to allow refinances for loans exceeding 125 percent loan to value.

 

The president says this will save underwater… (Read more)

 

Source: Mises.org