Just The Facts, Ma’am, Said Detective Joe Friday. The Dragnet Cop Should Be Around Today…

by Hank Boerner – August 11, 2016

The brilliant presidential advisors and later, U.S. Senator from New York, Daniel Patrick Moynihan, said it best: Everyone is entitled to their own opinion, but not their own facts.”

As I watch the current presidential campaign, the good Senator’s comments come to mind. So do the comments of Detective Sergeant Joe Friday on Dragnet (radio and TV) about “facts.” (“Just the facts, ma’am,” he would say.)

Too often, it seems, facts and fiction became intertwined and inseparable in the running commentary of the 2016 presidential election.

Let’s look at some economic facts in the hope that he American voting public can be better informed when watching the television news reports or attending a political rally.

Let’s start with these exciting facts for investors: Today as I write this (August 11) the three major stock market indexes all reached all-time highs, simultaneously. The last time that happened was 1999 – 17 years ago.

Today the most followed market stock market indexes stand at:

  • Dow Jones Industrial: 18,613
    S&P 500: 2,185
    NASDAQ: 5,228

Where were we on January 20, 2009, as the new president was being sworn in? (Recall that was the time of the financial markets meltdown and investment portfolios were heading to 40% losses.)

  • Dow Jones Industrial: 7,949
    S&P 500: 805
    NASDAQ: 1,140

This week’s market news is pretty encouraging for 401-k and IRA owners, eh?

Let’s look briefly at national unemployment rates:

  • July 2016: 4.9 per cent
    January 2009: 7.8% (would rise to 9.9% by December)

The web platform Politifact (published by the Tampa Bay Times in Florida) provided a scoreboard of the economy under President Barack Obama in June 2012 as he neared the end of his first term.

Fact: Overall inflation was 4.3% in 2008 / “Zero” was at in 2009

In the months leading up to the start of the Obama Presidency in January 2009, layoffs were peaking and the number of jobs lost — according to the U.S. Department of Labor — exceeded an estimated 7 million jobs…going, going gone as the Great Recession took the national economy into the abyss.

In December 2008 the U.S. Department of Labor described the situation this way: “…unemployment rose to 7.2% (from 6.8% the prior month); employment [fell that month] by 524,000; 1.9 million jobs were lost in the last four months of 2008; job losses were large and widespread across major industry sectors.”

There were 2.6 million jobs lost just in the year 2008 alone (fact source is CNN Money). The job losses in the U.S.A. were astronomical as the stock market cratered in 2008 and into 2009.

Consider: In September 2008: some 400,000-plus jobs were gone. In November 2008: 800,000 jobs lost. Layoffs continued into 2009, into the early months of the new administration in Washington (April 2009: almost 700,000 jobs disappeared).

Think of the ripple effect — if one industrial job was lost, economists’ rule of thumb was that three or four or more other jobs were disappearing, too.

The Center on Budget and Policy Priorities reported on August 10, 2016: Employers have added nearly 200,000 jobs each month since early 2010. (Remember: early in 2009 Congress passed the American Recovery and Reinvestment Act of 2009.)

After going deep into non-growth GDP territory in 2008, 2009 and toward 2010, we moved back into positive growth in 2010 and pretty much stayed there until today.

Check out the interesting charts at: http://www.cbpp.org/research/economy/chart-book-the-legacy-of-the-great-recession.

Last month — July 2016 — the country added 255,000 jobs.

Whether you believe the White House records or not, in March 2016 that was the source for this set of data:  The private sector had added 14.4 million jobs over 73 straight months of job growth.

There was not all good news of course, and you can check out the full report with its data and charts here: https://www.whitehouse.gov/blog/2016/04/01/employment-situation-march

Look at the job gains as reported by the Bureau of Labor Statistics, U.S. Department of Labor this year (2016) alone:

February: 233,00
March: 186,000
April: 144,000
May: 234,000
June almost 300,000
July: 255,000

And let’s not remove from our memory the preservation of an important industry employing hundreds of thousands of men and women in this country: vehicle manufacturing and marketing. Politifact noted (September 2012) that employment for car makers and their suppliers was up 250,000 jobs from 2009, with sales rising for Ford (13%), Chrysler (14%) and General Motors (10%) in 2011.

That’s a long way from 2008: GM out of cash to pay bills, Chrysler reeling as well; Ford in better shape financially having mortgaged literally all of its assets just before the financial meltdown on Wall Street. (The New York Times, November 27, 2006 — USD$19 billion as factories, equipment, offices, patents, trademarks, ownership in Volvo and other businesses were mortgaged.)

The rescue of the auto industry began under the presidency of George W. Bush, using TARP funds in his last months in office (fact), and continued under the presidency of Barack Obama. The heart of U.S. industrial power, the auto & truck manufacturing industry, was rescued by the Federal government with U.S. taxpayer money — which has been paid back for the most part. And jobs were protected.

“Make America Great Again,” the apparently trademarked slogan for the 2016 campaign (should we put a “TM” or “patent pending” or “R” here?), does have a certain resonance. In economic reality terms, however, it does not reflect the true condition of the economy after eight years of the current occupant of the White House. (He-whose-name-may-not-be-mentioned-in-certain-circles. OK, it’s Barack Obama.)

We as voters are entitled to the facts – -not fear mongering, not the offering up of misleading “facts” or the rhetoric of provocateurs. Having facts we can make better informed decisions as part of our civic responsibility — that is, when we enter the voting booth.

This probably comes across as a partisan commentary, favoring one side or the other. My intention is to present facts — the word descending down to our time from the ancient Latin, meaning “…the thing that is done, the thing known to be true…” vs. factitious, descending as well from Latin “…imagined, made up, artificial, not real or genuine…”

As fictional detective Joe Friday used to say on the popular television series “Dragnet”: “…just the facts, ma’am, just the facts…”

Or in the expression of this era…just sayin’.

Too Big to Fail/or Jail – Federal Judge Jed Rakoff Weighs In With His Views on the Financial Crisis Aftermath

by Hank Boerner

American bankers have had their share of nasty media headlines and uncomfortable conversations at congressional and regulatory oversight hearings.  And experienced the condemnation of the many for the nasty escapades that almost brought down the national economy. The excesses of the big money center banks (Citi, Bank of America, Goldman Sachs, Wells Fargo, other familiar names) have been well documented in newspapers, on cable and broadcast television, in some movies, and in a spate of best-sellers since 2008, The prosecutors in America (state attorneys general, US attorneys) have pursued some bankers in the courtroom.

But as The New York Times’ Gretchen Morgenson pointed out in her story of April 14, 2011, “…several years after the financial crisis, caused in part by reckless lending and excessive risk taking by major financial institutions, no senior executives have been charged or imprisoned…”

So what do these actions say about the cultures or the large financial institutions – the ones bailed out by the Federal government and were deemed “to big to fail.”  (And their leaders, too big to jail.)  As I characterized in my commentary during the 2008-2009 crisis, the leaders of the big financial institutions (which are “banks++) loaded everyone in the big yellow bus and proceeded at top speed toward the edge of the cliff.  Faster, faster — bonuses are at stake!  The public treasury kept the busses from hurtling all the way into the abyss. And taking the rest of us with them.

And so now we are tuning in to the aftermath of the great party of the first decade of the 21st Century, as bankers and yes, the rest of society, pretty much gorged on easy credit, loose regulatory oversight, lax controls in the companies, boards and C-suite that ignored risk, and were drawn like moths-to-the-flame to the sources of e-a-s-y money.  The party is over — but the clean up is still underway.  And will be for years to come.

The Federal and state prosecutors have been working against statutes of limitation to put criminal cases together and bring charges against high-level financial industry players.  Right now a trial is underway for another top manager at Steven Cohen’s SAC Advisors (the firm paid a hefty fine as well).

The large bank that was considered to have weathered the storms best — JP Morgan Chase — in the sunny days of the crisis aftermath is now busily writing checks to state and Federal governments — US$40 billion to date. The Huffington Post this week had a nasty story about the accumulated fines paid by JPMC in recent months.  The question hangs in the air – what kind of culture exists at this large institution that resulted in huge financial losses and fines for various kinds of errant behavior?  No doubt in books to come we will find out more.

in a remarkable piece in The New York Review of Books, United States District Judge Jed S. Rakof wrote, “…I do not claim that that the financial crisis that is still causing so many of us so much pain and despondency was the product, n whole or in part, of fraudulent misconduct.  But if it was, as various governmental authorities have asserted, then the failure of the government to bring to justice those responsible for such colossal fraud bepeaks weaknesses in our prosecutorial system that needs to be addressed…”

He points out that companies do not commit crimes, only their agents do that.  And yet companies are being prosecuted, not the top “agents.” The judge’s article — “The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?” — asks,”… if the Great Recession was due, at worst, to lack of caution, then criminal law has no role to play.  But if it was the product of intentionally fraudulent practices by high-level executives, then failure to prosecute those responsible must be judged one of the more egregious failures of the criminal justice system in many years.”

He points out that in the 1970s, the junk bond bubble era, those who committed fraud were successfully prosecuted, “right up to Michael Milken” (at Drexel Burnham Lambert, who was considered “King of the Junk Bond”) After the Enron collapse, senior executive Jeffrey Skilling went off to jail; after the WorldCom collapse, CEO Bernie Ebbers was successfully prosecuted.

In contrast, not a single high-level executive has been successfully prosecuted in connection with the recent financial crisis…and with the a five year statute of limitations, it appears likely that none will be.  It may be too soon to ask why…perhaps no fraud was committed. Even though the Financial Crisis Inquiry Commission found signs of fraud everywhere it looked (and documented same in a lengthy public document that mentioned fraud 157 times).

The respected Federal jurist mentions the doctrine of “willful blindness,” where defendants cannot escape prosecution by shielding themselves from clear evidence of critical facts strongly suggested by the circumstances surrounding the crime.  But perhaps now, with so much at stake for large financial “supermarkets” that such blindness to certain behaviors is being baked into the culture…becoming part of the DNA of large financial institutions.  The Federal government itself does not escape criticism from the judge. He cites government involvement in creating the conditions that could lead to such fraud.

Judge Rakoff is well respected among other judges and among the prominent bar.  His criticism of the Department of Justice (for inaction) are stinging.  The SEC is no doubt watching closely (Chairwoman Mary Jo White is a former Federal prosecutor in NY).

I would Stay Tuned to the judge and his now very public proclamations on the subject of the ebbing financial crisis and possible wrongdoing.  Which may not be pursued at high levels in 2014…but do not rule out sweeping changes at some point in how the justice system looks at future allegations of corporate or executive level fraud calling for  thorough criminal investigation and aggressive prosecutorial action. Major changes many be in store for the U.S. Justice Department and the SEC with regard to public expectations when the next bubble occurs.

Judge Rakof’s article is worth reading – he is a judge on senior status for the Southern District of New York, and former Federal prosecutor who really know the territory of the financial industry – you can find it at: www.nybooks.com