Last week, when almost every major US bank manufactured profits out of thin air by changing their regular reporting periods to exclude months in which huge losses occurred, by changing their definitions of bad debt, and by revaluing their assets at fantasy land valuations that they will never receive in the open market courtesy of FASB, this event was a non-event to me because it merely continued the process known as the Enronization of America. This event, the systemic injection of fraud and deceit into nearly every aspect of American life, has been unfolding for decades, even prior to the Enron scandal itself.
Recently, Bank of America CEO Ken Lewis testified that former US Treasury Secretary and ex-Goldman Sachs CEO Hank Paulson instructed him to disobey securities law and conceal material losses in the Merrill Lynch merger from investors. Lewis additionally testified that Paulson threatened to fire him and his entire board if he tried to back out of the Merrill deal. These revelations, too, did not surprise me, for these kinds of activities, devoid of all morals and ethics, have been occurring regularly within the financial industry for decades. It only seems as if such transgressions are more numerous today because of the recent attention given them in the media, but in reality, they have neither proliferated in frequency nor expanded in egregiousness.
Anyone that has ever worked for a Wall Street firm is well aware of the danger an analyst brings upon himself when he refuses to tow the official corporate party line regarding stock ratings for a firm that is simultaneously closing a financially significant deal with the analyst’s employer. Even though this atmosphere of “unspoken coercion” of inflated stock ratings existed for decades, when the bull was strong on Wall Street, very few journalists found this story newsworthy. Even though regulatory laws were passed many years ago to separate investment banking interests from securities interests within the same firm, the percent of US stocks covered by Wall Street firms rated as a “buy or hold” actually increased from 89% (2003) to 93% (2007) after the passage of aforementioned regulations. Who in their right mind would ever believe that 93% of all stocks covered by Wall Street should be rated a “buy or hold” and that only 7% should be rated a “sell”?
When regulations are enforced through self-monitoring and self-policing as is too often the situation, and when all financial regulatory agencies are themselves lacking in integrity and transparency, new regulations can be enacted every day without effect. Self-regulations and regulations imposed by morally bankrupt people have never been effective. How quickly we forget that UBS Paine Webber financial consultant Chang Wu was fired by branch manager Patrick Mendenhall no more than several hours after Enron executive Aaron Brown complained to Mr. Mendenhall about an email Mr. Wu had sent to his clients. In the email that Mr. Brown found “extremely disturbing”, Mr. Wu had advised all of his clients to sell Enron stock due to massive liquidity problems he had uncovered, even though UBS Paine Webber had rated it a strong buy. (Source: CNN, “Financial Adviser Fired Over Enron Advice”, 26 March 2002). After Mendenhall fired Wu, UBS sent an email to their clients retracting Mr. Wu’s statement, informing them that Enron stock was “likely heading higher than lower from here on out.” (Source: New York Post, 4 October 2006).
We should be cognizant that in light of the Enron scandal, that this level of deceit has not been a recent development. In 2001-2002, a partial list of companies that had to re-declare earnings due to erroneous information contained in previous earnings announcements included the following companies: Adelphia, AOL Time Warner, Arthur Anderson, Bristol-Meyers, Squibb, Freddie Mac, ImClone, Citigroup, General Electric, JP Morgan, Tyco, Worldcom, Dynergy, Enron, General Motors, AIG and Hyundai. Many of the company names on this list are the same companies that have been exposed as withholding material information from their investors about their financial health either in this year or in recent years. And let us not forget that in the early 2000’s, JP Morgan, Morgan Stanley, Goldman Sachs, Credit Suisse First Boston, Lehman Brothers, UBS Warburg, and US Bankcorp Piper Jaffray all paid fined between $32,5000,000 and $400,000,000 for engaging in deceptive and unethical behavior (Source: PBS Frontline, “The Global Settlement, an Overview”, 28 April 2003).
In regard to such ethical issues, unfortunately, little has changed today. With the blessings of FASB and our current administration, almost every major bank in the US is cooking their books today (i.e. consider that, of $4.2 billion of Bank of America’s recently declared earnings, $1.9 billion was attributable to a non-recurring event, the sale of China Construction Bank shares, and $2.2 billion was attributable to a fantasy-land valuation of Merrill Lynch structured notes). As I previously stated though, the Enronization of America started well before the Enron scandal. If we take a moment to dwell on what aspects of our financial system have been Enronized with fraud, it would include our financial ratings system led by Standard & Poors and Moodys, our mortgage system, our banking system, our equities analysts and financial analysts, our accounting system, our regulatory agencies including FASB, the SEC and the CFTC, our media, our politicians, our corporate executives, and lastly and most significantly, our monetary system.
In fact, though the current media focus seems to be on morally bankrupt financial executives and institutions, the fact is that this scenario could not have proliferated over the past several decades if the problem did not run much deeper than just our financial infrastructure. If other integral aspects of our society were uncompromised, they would have flushed out the dishonesty so prevalent in our financial industry many years ago. So the real question that needs to be examined is this – How exactly did the Enronization of America become so systemic?
The Enronization of our Legal System
The first phase of the Enronization of America occurred through our legal system. Most of us make the grave mistake of equating our legal system with morality, but law and morality are creatures that often reside at opposite ends of the spectrum under our current legal system. Since those that make our laws are also the same amoral people that control our financial system, often our laws have very little concern with governing morality and much more focus on ensuring that the very elements that hold power maintain or expand their power. Most Americans automatically equate a behavior as right or wrong depending on whether a law defines such behavior as legal or illegal without any critical thought, and this is a mistake. The fact is that today, many laws have nothing to do with morality. In fact, our legal system is laden with such hypocrisy at times that it allows for the very same behavior to be defined as legal if a financial elite is engaging in the behavior but illegal if a “regular Joe” is engaging in it.
Consider that US corporations can legally funnel hundreds of millions of dollars of overseas earnings to sham off-shore shell corporations specifically set up to serve as a tax-evasion shelters and this action is considered legal, but wealthy US individuals that essentially attempt to do the same thing regarding their own personal income will be prosecuted for tax evasion. Consider that Richard Strong, CEO of the former Strong Mutual Funds, admitted to skimming $1.8 million from his clients’ accounts that essentially was the equivalent of stealing, yet under the auspices of our current legal system, was not sentenced to a single day in jail (Source: Washington Post, 23 June 2004). Yet there is little question that if a hungry, unemployed man steals food equivalent to a fraction of the money Richard Strong stole, he will go to jail if caught. Stealing $1.8 million may be legal, but it certainly is not moral.
In 2005 and 2006, CEOs from the 11 largest firms in America paid themselves $865,000,000 in salary even though their “leadership” caused a loss of $64,000,000,000 of market capitalization in their firms during the same equivalent time period (Source: BBC News, 22 June 2006). Yet, if an employee of this firm performed as miserably as did these CEOs, their reward would almost certainly be a pink slip, not millions upon millions in bonuses, salaries and perks. Again, paying oneself hundreds of millions in salary and hundreds of millions more in bonuses despite contributing to unemployment and the massive loss of shareholder wealth is by all means legal though few would dispute the unethical nature of such behavior.
Were our legal system truly to regulate morality, many executive suites of America’s largest financial corporations would transform into ghost towns as a great percentage of executives would be jailed. There are numerous actions that are considered “legal” today that would be illegal if moral and righteous men were making our laws, and even a handful of “illegal” behaviors that would most likely be re-categorized as legal. Suffice it to say, if our legal system has been Enronized, our regulatory agencies by default, have also been Enronized. The Enronization of our Securities and Exchange Commission (SEC) has never been more apparent its failure to shut down Bernard Madoff and protect American and foreign families from fraud even though independent financial fraud investigator Harry Markopoulos informed the SEC both in writing and verbally numerous times of the fraudulent nature of Madoff’s fund over a nine-year timespan.
During Congressional testimony regarding this matter, Mr. Markopoulos stated that when the SEC repeatedly ignored his warnings about the fraudulent nature of Madoff’s practices, he began to fear for his as well as his family’s safety, a damning indictment of not only the SEC’s abject failure to regulate, but also of their propensity to protect powerful members of the financial elite, even when they commit fraud. The continuing failure of other regulatory agencies such as the CFTC to act in the interests of American people is also quite evident. Consider the CFTC’s recent approval of fraudulent financial products such as the new E-mini Gold and Silver futures contracts, introduced on April 19th by CME group, that settle strictly in cash. Futures contracts that specifically prohibit the delivery of its underlying commodity explicitly allow its participants to legally naked short a commodity with zero intention of every purchasing or holding the underlying physical asset in their possession. If this transpires, a fraudulent commodity market that can never resemble the free market dynamics of its physical market is established.
In recent months, the regulatory agencies have demonstrated a propensity to still prosecute criminal activity that occurs among the “regular Joes”; however, if your rank is among the financial elites, a clear and repetitive response of inaction has been established.
The Enronization of our Media
The second phase of America’s Enronization has occurred through the mass media. Ben Bagdikian, the author of the seminal work on media mergers and consolidation titled The Media Monopoly, has noted that almost all major media in the US is now under the control of five major conglomerates – Time Warner, Disney, Murdoch’s News Corporation, Bertelsmann of Germany and Viacom. To be fair, there are a handful of major news organizations not controlled by the “big five”, including The New York Times, The Washington Post, The Chicago Tribune and Los Angeles Times. However, Badgikian’s basic premise that the problem with our media is “not one of universal evil among the corporations or their leaders” nor one of “a general practice of constant suppression and close monitoring of the content of their media companies”, but one of a contradiction between the values of free enterprise and the interests of giant conglomerates, is still valid.
Today, many important news stories break on the internet by bloggers well before they attract the necessary viral proliferation to draw the attention of major media outlets. Today, a strong case can be made for the argument that one will find a greater level of truth and integrity in reporting on the internet than in major information distribution channels such as CNBC.
The Enronization of Our Critical Thinking Skills
Undoubtedly the Enronization of our media has evolved into the Enronization of our educational system. Though this is a topic that commands the devotion of an entirely separate article, the financial elites have heavily influenced the curriculum taught at leading American educational institutions for decades now. For example, over the last century, the Rockefeller family has donated millions upon millions of dollars to leading economic schools such as the University of Chicago and Harvard Business School. Even if you don’t buy into the strong likelihood that millions of monetary donations to educational institutions buys the financial oligarchs influence over our educational curriculum, you should at a minimum consider this possibility. Perhaps it is the monetary influence of financial elites such as the Rockefellers that is largely responsible for erroneous economic beliefs about inflation and our monetary system that persist today.
To grant further support to the suggestion that the financial elites likely utilize their money to guide certain aspects of the curriculum at leading educational institutions in America, recall that in 2002, David Rockefeller stated in his own autobiographical memoirs: “For more than a century ideological extremists at either end of the political spectrum have seized upon well-publicized incidents such as my encounter with Castro to attack the Rockefeller family for the inordinate influence they claim we wield over American political and economic institutions. Some even believe we are part of a secret cabal working against the best interests of the United States, characterizing my family and me as “internationalists” and of conspiring with others around the world to build a more integrated global political and economic structure – one world, if you will. If that’s the charge, I stand guilty, and I am proud of it.” The only difference today is that the cabal working against the best interests of the US and all American families is no longer secret, but well documented and well known.
Since the above statement is sure to stir up cries of conspiracy regardless of the fact that it is directly attributable to a member of the financial oligarchy, let us take a minute to consider the Enronization of our critical thinking skills. Why do those with a keen interest in suppressing the truth about the origins and nature of our current global financial crisis have great success in doing so merely by simply using the word “conspiracy” to marginalize the well-constructed arguments of others? Why do the people that attempt to discredit these truthful revelations never offer more than flimsy verbal accusations devoid of any evidence to validate their accusations?
And why do we rarely, if ever, challenge the fact that the vast preponderance of people that flippantly dismiss valid arguments about our current global financial crisis are those whose personal wealth depend upon deluding masses of people about the health of our stock markets and the soundness of our financial institutions and monetary system? Today, the Enronization of our institutional education system has dulled our aptitude of critical thinking to such a degree that we now look to others to do our thinking for us. Instead of challenging the propaganda that makes zero sense, we are all too willing to be duped into believing erroneous concepts just because they are written in a textbook or a newspaper.
As a prime example of this, consider the propensity of Central Banks and the IMF to pre-announce massive gold sales that they rarely execute. From a purely logical standpoint, can anyone well versed in logic truly argue one beneficial reason for doing so? In 1999, when now UK Prime Minister pre-announced the sale and actual eventual execution of 400 tonnes, or more than half, of the Bank of England’s gold reserves, his announcement promptly caused the gold market to plummet to $250 an ounce, the lowest price in the last decade. For an institution interested in making profits, it is a foregone conclusion that pre-announced large sales of gold reserves will significantly depress prices; thus what is the reason behind such an announcement other than to purposely depress prices? Yet, when skeptics are presented with such evidence and can offer no valid counter-argument, instead of intelligently considering the validity of another’s viewpoint, too often we are apt to shut off our brains and repeat beliefs that have been repeatedly rammed down our throats rather than critically assessing the situation for ourselves.
In the seminal book about warfare, The Book of Five Rings, legendary samurai Miyamoto Musashi wrote, “true enlightenment can be seen by what a person has done, not by what he says. Those who have missed the mark may chatter all day long about this and that, but they have never done anything. Anyone can make a good argument, but few can show good results.” If we as Americans wish to stop the Enronization of our country and to reinstitute our rights of self-determination and our Constitutional rights to a sound monetary system that are paramount to a free society, we must judge people not by what they say but by what they do. We must listen not to those that present hollow arguments and that can demonstrate no positive track record of results, but rather focus on the thoughtful arguments of the few that have been able to illustrate the intelligence and validity of their views because their predictions have been vetted over time.
As a nation, we have become Enronized because we too often focus on the false arguments of those that are well versed in the art of persuasion yet have a persistently poor track record of results. As a prime example, consider this video of Congressional testimony where former US Treasury Secretary Hank Paulson disingenuously claims that he advocates greater transparency in US markets when in fact, Goldman Sachs, under his direct leadership, aggressively lobbied to repeal laws that granted financial markets transparency. We are much too apt to accept the words of people rather than to take the more intelligent approach of analyzing their actions to judge the validity of their words.
The Enronization of Our Leaders
The final phase of the Enronization of America has occurred through our power structure and politics. The financial oligarchs that wish to suppress the truth about their role in this crisis have been very opportunistic in forming close relationships with the highest echelons of government and then using this inordinate power to polarize the masses and further consolidate their power. The revolving door among Central Banks (i.e the Bank of Italy, the Bank of England, the US Federal Reserve), Goldman Sachs, the US Treasury, JP Morgan, and Citigroup has been well documented so I won’t repeat the prolific work of others here. However, using politics or nationalism as a divisive maneuver is often a favored tactic of the financial elites, so we must remain vigilant against immoral attempts to deflect our attention away from the true causes of this crisis, such as the scapegoating of immigrants or other shameless tactics.
When obfuscation of fact and misinformation systemically replace transparency and integrity as they have in our modern society, we have little chance of producing a favorable outcome to this current crisis. Twenty-six banks have failed thus far in the United States this year and every single bank failure announcement, without fail, has occurred on a Friday afternoon after market close so that the revelations of these bank failures cannot adversely affect markets while they are open. Additionally, such announcements are timed as such to grant investors two weekend days to forget about these failures.
America has been Enronized over the past several decades not because of Democrats and not because of Republicans, but because of the financial oligarchs that have ruled and continue to rule our country. The Enronization of America has happened under President Clinton’s watch, it continued under President Bush’s watch and it is now progressing under President Obama’s watch. Until we wake up and correct many of the flaws in our thinking and in our justice system, the Enronization of America will continue. Arthur Shopenhauer, a noted German philosopher, once stated, “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.”
We have already passed through the first stage where truth has been ridiculed. For several decades, those that attempted to reveal the price suppression schemes executed by governments and Central Bankers against gold and silver were ridiculed as conspiracy loonies. Today, the evidence of this manipulation is so overwhelming (please reference all of Ted Butler’s tireless work to expose silver price manipulation) that men that dwell firmly inside the confines of the mainstream, men that previously would never have dared to publicly state such sentiments just 10 years ago, are now stepping forward and publicly acknowledging the existence of price suppression schemes that interfere with free markets (i.e., Donald Coxe, chairman of Harris Investment Management in Chicago).
Today we have progressed to the second stage of truth, when truth is violently opposed. Within the past year, former Treasury Secretary Hank Paulson testified multiple times in Congress that it is not reality that is important to stock markets, but only what people think they know, even if what they think is wrong. Though he did not make that statement in these exact words, Paulson regularly emphasized the vital importance of consumer confidence to the performance of capital markets. In the end, confidence levels measure consensus belief and often have very little correlation to the reality of underlying economic fundamentals. In a bear market, such as the one in which we are currently engaged, it is safe to say that rising stock markets serve as a barometer of deceit. The greater the deceit by our leaders, the more likely stock markets will act irrationally and rise when there is no foundation to support the rise, including the most recent rally that we have witnessed in US markets in March and April of 2009. I will go on record here in believing that we will see another waterfall decline in US and global markets by the end of this summer.
It is no wonder, given the propensity of our leaders to deceive, that US consumer confidence jumped to its highest level this month since last November. As long as markets react positively to lies that prevent the masses from understanding the grave situations of our faltering economy and monetary system, our government and financial leaders will continue to prevent people from knowing or understanding the truth. One merely has to consider that FASB conveniently altered mark-to-market regulations immediately prior to first quarter 2009 earnings season and immediately prior to stress tests that were to be conducted on these same institutions to realize that our current administration is not any more interested in disclosing the truth or increasing transparency than previous administrations. Again, we would be wise to remember Miyamoto’s sage advice to judge someone not by his or her words, but by his or her actions.
The fragility of America’s emotional state regarding the dire economic situations that existed during the last US Presidential campaign left America vulnerable to blindly accepting anybody that promised change, but again we must consider the actions, not the words, of this current administration. We must look at the men appointed to “solve” this crisis and understand that almost all of these men come from the same unethical institutions such as Citigroup, Goldman Sachs, and JP Morgan, that were largely responsible for creating this crisis. The most efficient way to solve a crisis caused by lack of ethics and morals is not to put the most morally bankrupt people in the nation in charge. It should disturb us all that men like Paul Volcker have been appointed to lead a Presidential advisory board when he once stated in reference to rising gold prices in the 1980’s:
“That day, the U.S. announced that the dollar would be devalued by 10%. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake.”(Source: Volcker’s memoirs printed in the Nikkei Weekly, November 15, 2004).
Men that clearly state a position that collusion to rig markets is preferable to the transparency and integrity of free markets should never be appointed to any position of leadership in our country. Despite the lack of leadership from the financial elites during this crisis, they have made it clear that their agenda of concealing the truth from us will not prevent them from shamelessly pinning us with the blame for their errors by increasing our taxes and devaluing the purchasing power of our dollars.
And this is precisely why the energy of those that participated in the recent teabag protests is improperly focused. Yes, our government has contributed to the instability of our economic infrastructure. However, the government is not the root cause or the prime perpetrators of our global financial crisis. This honor belongs to the financial oligarchs and the fraudulent monetary system they have instituted. Today, governments have devolved into nothing more than an instrument of execution for the financial oligarchs. The late great John F. Kennedy was the last US President to understand and recognize the massive flaws and amorality of our modern day monetary system, as evident in his signing of Executive Order 11110. Were the honorable President Kennedy still alive today, but a regular citizen, voicing the exact same displeasure against our current monetary system as he did half-a-century ago, I have little doubt that those in power would have already marginalized his arguments and labeled him as a “conspiracist”.
The End Game: How to Stop the Enronization Process
The lack of transparency and the veil of secrecy that has existed in our financial world for a very long time now have enabled the Enronization of America. Furthermore, the misinformation campaigns that the financial elite have engaged upon for decades have further supported and maintained the ignorance of the masses. If one merely focuses on gold and silver markets, one can uncover a mountain of deceit. Consider that when Central Banks lease gold, they still claim it as an asset on their balance sheets, an obviously fraudulent practice. In fact, I could fill another ten pages with the deceitful reporting practices of Central Banks regarding gold that I have uncovered, but I don’t want to dilute the central focus of this essay, which is not to focus on the Enronization of commodity markets but to focus on the systemic-wide problems of fraud in America. This is not an indictment of American citizens, but an indictment of those that reside at the very top of the power structure, and most specifically, the financial elites.
In the end, let us not look to the words of our financial and government leaders for truth, but to their actions. If there has ever been another institution in the history of America with a persistently worse track record of accomplishing their stated mission than the US Federal Reserve (that of maintaining price stability), I can not think of one. Thus, we should permanently shutter institutions that have a track record of utter failure and that have consistently failed to act in the interests of their citizens. This list would include the US Federal Reserve as well as the Bank of England, the Bank of Japan, and the ECB. We should also permanently shutter those financial institutions led by corrupt executives that have cumulatively made billions from the purposeful deception and bankrupting of American families. Finally, if you are a shareholder with voting rights, it is incumbent upon you to exercise your rights at general meetings to oust all corrupt directors and executives at corrupt firms. Because it is near impossible to regulate morality, the only sustainable solution to stopping the Enronization of America is to remove the very institutions and people responsible for this process. As current administrations of major governments all around the world have demonstrated an unwillingness to do so, it is patently clear that this movement must originate from the people.
If we all desire the freedom of self-determination that is impossible with a corrupt monetary system, this change will have to come from the people. If we all desire a sound monetary system devoid of the ability to be mercilessly manipulated by elements of the US Treasury, the US Federal Reserve, the Bank of England, Goldman Sachs and JP Morgan, this change will have to come from the people. If we all are opposed to leaving a legacy of indentured servitude to the financial elite for future generations, then this change will have to come from the people. The alternative consequence of our inaction will be the manifestation of Shopenhauer’s third stage of “truth as self-evident” at a not-so-distant time in the future when it will be far too late to affect a positive outcome from our current financial crisis.
JS Kim is the President & Founder of maalamalama, LLC, a fiercely independent investment research & consulting firm that focuses on understanding the roots of our current monetary and financial crisis to create wealth.
