The Case for a Financial WikiLeaks | Ian Fraser

The Case for a Financial WikiLeaks | Ian Fraser

The Case for a Financial WikiLeaks

By Brett Scott

May 15th, 2012 (edited May 16th, 2012)

The greatest barriers to financial whistleblowing are social and economic, not legal. Fear of being shunned by colleagues, passed over for promotion, bullied and harrassed, summarily dismissed and even shut out of Wall Street or the City for life plays a big part in dissuading executives who become aware of crimes and misdemeanours inside their organisations from blowing the whistle.

Occasionally, as we saw with Greg Smith and his remarkable New York Times op-ed Why I Am Leaving Goldman Sachs, an employee’s conscience gets the better of them. But fear of being ostracised for “spoiling the party”, coupled with an attachment to the high pay that a financial career can bring (you might call it ‘moral cowardice’) is sufficient to persuade the vast majority of putative whistleblowers to keep schtoom.

That’s why I believe we need a financial version of the whistleblowing website WikiLeaks. It would protect employees from management retribution and eliminate the social barriers to speaking out. There are already several leak sites available (check out the Leak site directory).

WikiLeaks has previously been used for financial leaks relating to the banks Julius Baer and Barclays, and in 2011 there was speculation that it was sitting on a treasure trove of incriminating information that might bring down Bank of America (In the end the emails, published at bankofamericasuck.com and here, turned out to be something of a damp squib. Dating from November 2010, the emails suggest that employees of  Balboa Insurance Group, a subsidiary of Bank of America, removed documents from loan files relating to a group of insured properties).

WikiLeaks though, has mostly made a name for itself in exposing political controversies. People don’t predominantly think of it as the place to go to find out about corporate wrongdoing, and corporate disclosures on the site run the risk of being drowned out by the drone of government abuse.

One organization that does specialize in corporate disclosure isAnonymous Analytics, whose focus is on ”acquiring information through unconventional means” (a.k.a. hacking and subterfuge) and presenting it in the form of investment analysis reports. The group, whose stated aim is to “provide the public with investigative reports exposing corrupt companies” and whose team includes “analysts, forensic accountants, statisticians, computer experts, and lawyers from various jurisdictions and backgrounds” caused a stir last September when it exposed alleged large-scale fraud at Chaoda Modern Agriculture, a Hong Kong-listed company. Anonymous Analytics claimed that Chaoda was:-

“overstating its cash balance, exaggerating its revenue, and falsifying its financial statements.”

Last week Anonymous Analytics initiated coverage of another Hong Kong-listed company Huaboa International. In a 44-page report entitled “Smoke and Mirrors”, it alleged Huabao overpaid for several companies acquired from its chairwoman, Chu Lam Yiu. The research note also questioned the veracity of Huabao’s financial statement and performance data. The report stated that:-

“We believe management is materially overstating Huabao’s earning power … [Huaboa International] is a pump and dump scheme with the primary objective of enriching its chairwoman.”

While Anonymous Analystics specializes in ‘primary research’, it also briefly offered a dropbox facility for would-be whistleblowers. This was recently closed down. The offshoot of the hacker group claimed this was because it had been unable to handle the volume of tips, comments and emails it had received.

Organisations such Anonymous Analytics are firmly focused on overt cases of corporate fraud and headline-grabbing controversies. Nevertheless, while having channels to expose criminality is important, there are many other equally valid reasons to create a financial leaks site.

WikiLeaks’s release of the US Embassy Cables, which commenced in November 2010, didn’t provide much sensational news, but it did provide a rare window into the normally opaque worlds of diplomacy and espionage and the conflict between the State department and more nefarious arms of the US state. It will be an invaluable resource for academic researchers and journalists for years to come. But there are few, if any, such open windows into the financial sector.

The Safe Deposit Box: A Tool for Transparency

This, coupled with the inadequacy of most financial regulators around the world, is why a specialised financial leak site is so badly needed.

Here’s my back-of-the-envelope sketch for the Safe Deposit Box, a site that would improve transparency in financial institutions (including banks, insurers, funds, brokers) and commodity trading outfits, by providing a channel that would encourage internal leaks. It could be curated by individuals with financial expertise, such that information leaked could be vetted for accuracy and presented correctly (something that non-specialist leak sites would be unable to do). The site could be split into two main divisions with different purposes:

• A whistleblowing section to allow employees of banks and other financial institutions to expose dubious behaviour, including instances of financial crime, market manipulation, insider trading, ‘creative’ accounting and rogue trading.
• A transparency initiative focused on shedding light on the inner workings of financial institutions. This section would encourage employees to contribute information such as organisational structures, divisional strategies, risk exposures, compensation, and other information that helps to break the near impenetrable wall of secrecy (omertà) large financial institutions frequently enjoy.

Many people intuitively understand the value of division one, but division two is perhaps harder to justify. What’s the point of transparency for transparency’s sake, some might ask? I would argue that banks and other financial institutions still enjoy huge political clout (and indeed some are owned by the public), yet citizens have virtually no insight into their inner workings and strategies,  including who they are lending to, how they treat distressed assets, or their level of speculation on energy and food prices. (see “Barclays shame award“)

For example, I suspect that the residents of Chicago do not have the faintest idea of how a Morgan Stanley consortium came to own the city’s parking meters. I also suspect the residents of Edinburgh have no idea how a RBS consortium came to own the city’s main hospital, the Edinburgh Royal Infirmary.

At a systemic level, the very opacity of financial transactions increases systemic risk, which in turn has a massive impact broader society. Providing a channel for financial employees to shed light on their organisations would have: (1) a democratic empowerment benefit and (2) A research and regulation benefit, providing more material for citizens, academics and regulators to understand and monitor the financial sector.

The transparency initiative could be split into specific research domains that are of particular concern (or ought to be) to journalists, researchers, campaigners, regulators, and even some politicians. For example, domains could include:

• A high-pay transparency programme to gather leaked payrolls, compensation reports and other material to help in monitoring financial incentive systems.
• A tax haven programme to gather lists of subsidiaries, offshore transactions and other material to help shed light on tax avoidance systems.
• A loan transparency programme to gather information on loan portfolios of the banks’ corporate banking divisions, thereby helping keep tabs on socially and environmentally irresponsible lending
• A programme gathering information on banks’ dealings with Polically Exposed Persons (including deposed dictators and their families), authoritarian regimes, and dodgy individuals
• A systemic risk programme gathering info on prop trading levels, interbank risk exposures, and shadow banking systems
• A programme collecting information on ‘mis-selling’ and poor customer service (aka. treating clients as muppets)

I don’t want to be flippant. I also accept that actively encouraging breaches of confidentiality might border on being illegal. Yet confidentiality and non-disclosure agreements are often used by banks to bury frauds and other issues of concern, whose victims are often outside the institution that perpetrates them.

For example, in my research into the potentially damaging effects of commodity speculation, I hit a brick wall when seeking to establish how much banks earn from their agricultural commodity trading desks. They simply don’t report it, and stonewall all requests for information.

I recognise that that leak sites are far from perfect mechanisms and that innumerable issues would have to be overcome before a site along the lines I describe could be launched.

These would include how it would be structured and who would be permitted to access the information. Would it be better to use a centralised WikiLeaks structure, or something more decentralised along the lines OpenLeaks (set up by Wikileaks defectors, but yet to launch)? Might it be better to consider something more conciliatory and collaborative, more like Wikipedia, a financial commons that would allow people with financial expertise to freely and anonymously contribute?

What I do know though, is that financial secrecy benefits a very small section of society, but harms a very large section of society, and I’m also sure that there are a great many financial workers who would love the opportunity to spread the love by spreading the knowledge. There again, there’s always the risk that such a site might also attract the attention of the financial blockade.

The original version of this article was headlined The Safe Deposit Box: Creating a Financial Wikileaks. Written by Brett Scott, who operates as a consultant bridging the gap between finance and those involved in socio-environmental justice and international development. He has also written for the Guardian, the Ecologist, New Internationalist and Open Democracy. Brett blogs at www.suitpossum.blogspot.com and tweets as @Suitpossum. He is a fellow of the WWF/ICAEW Finance Innovation Lab.

The 1930′s Forgotten Economic Lessons

The 1930′s Forgotten Economic Lessons

'Too big to fail' and getting bigger | Bloomberg

'Too big to fail' and getting bigger | StarTribune.com

• me
 
• Business

'Too big to fail' and getting bigger

• Article by: DAVID J. LYNCH , Bloomberg News 
• Updated: April 16, 2012 - 9:36 PM

"

BigTwo years after President Obama vowed to eliminate the danger of financial institutions becoming "too big to fail," the nation's largest banks are bigger than they were before the nation's credit markets seized up and required unprecedented bailouts by the government.

Five banks -- J.P. Morgan Chase & Co., Bank of America Corp., Citigroup Inc., Wells Fargo & Co., and Goldman Sachs Group Inc. -- held $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy, according to central bankers at the Federal Reserve.

Five years earlier, before the financial crisis, the largest banks' assets amounted to 43 percent of U.S. output. The Big Five today are about twice as large as they were a decade ago relative to the economy, sparking concern that trouble at a major bank would rock the financial system and force the government to step in as it did in 2008 with the Fed-assisted rescue of Bear Stearns Cos. by J.P. Morgan and with Citigroup and Bank of America after the Lehman Brothers bankruptcy, the largest in U.S. history.

"Market participants believe that nothing has changed, that too-big-to-fail is fully intact," said Gary Stern, former president of the Federal Reserve Bank of Minneapolis.

Eroding faith

That specter is eroding faith in Obama's pledge that taxpayer-funded bailouts are a thing of the past. It is also exposing him to criticism from Federal Reserve officials, Republicans and Occupy Wall Street supporters, who see the concentration of bank power as a threat to economic stability.

As weaker firms collapsed or were acquired, a handful of financial giants emerged from the crisis. Since then, J.P. Morgan, Goldman Sachs and Wells Fargo have continued to grow internally and through acquisitions from European banks, reeling from government austerity measures related to the rising cost of public debt in Greece, Spain, Portugal, Ireland and Italy.

The industry's evolution defies the president's January 2010 call to "prevent the further consolidation of our financial system."

Simon Johnson, a former chief economist of the International Monetary Fund, blames a "lack of leadership at Treasury and the White House" for the failure to fulfill that promise. "It'd be safer to break them up," he said.

The Obama administration rejects the criticism, citing new safeguards to head off further turmoil in the banking system. Treasury Secretary Timothy Geithner said in remarks on Feb. 2 the U.S. financial system is "significantly stronger than it was before the crisis." He credits new regulations, including tougher capital and liquidity requirements that limit risk-taking by the biggest banks, authority to take over failing big institutions and prohibitions on the largest banks acquiring competitors.

The government's financial system rescue, beginning with the 2008 Troubled Asset Relief Program, angered millions of taxpayers and helped give rise to the Tea Party movement. Banks and bailouts remain unpopular: By a margin of 52 percent to 39 percent, respondents in a February Pew Research Center poll called the bailouts "wrong" and 68 percent said banks have a mostly negative impact on the country.

Riding out turbulence

The banks say they have increased their capital backstops in response to regulators' demands, making them better able to ride out unexpected turbulence. J.P. Morgan, whose chief executive officer, Jamie Dimon, acknowledged public "hostility" toward bankers in a March 30 letter to shareholders, boasted April 13 of a "fortress balance sheet." Bank of America, which was about 50 percent larger at the end of 2011 than five years earlier, says it has boosted capital and liquidity while increasing to 29 months the amount of time the bank could operate without external funding.

Today's 6,291 commercial banks are less than half the number that existed in 1984, according to the Federal Deposit Insurance Corp. The trend intensified during the crisis as J.P. Morgan acquired Bear Stearns and Washington Mutual, Bank of America bought Merrill Lynch and Wells Fargo took over Wachovia in deals encouraged by the government.

"One of the bad outcomes, the adverse outcomes of the crisis, was the mergers that were of necessity undertaken when large banks were at risk," said Donald Kohn, vice chairman of the Federal Reserve from 2006 to 2010. "Some of the biggest banks got a lot bigger and the market got more concentrated."

In recent weeks, at least four current Fed presidents --Esther George of Kansas City, Charles Plosser of Philadelphia, Jeffrey Lacker of Richmond and Richard Fisher of Dallas -- have voiced similar worries about the risk of a renewed crisis. Five" banks now hold assets equal to 56 percent of the U.S. economy.

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OpEdNews - Article: Is Fukushima's Doomsday Machine About to Blow?

OpEdNews - Article: Is Fukushima's Doomsday Machine About to Blow?

opednews.com

Mounting troubles at Japan's hobbled Fukushima Dai-Ichi nuclear power plant now pose a real threat to human survival. If the area in which Unit 4 is struck by another 7.0 magnitude earthquake, there's a 70 percent chance that "the entire fuel pool structure will collapse" and massive doses of lethal nuclear radiation will be released into the atmosphere. The disaster would release approximately "134 million curies is Cesium-137 -- roughly 85 times the amount of Cs-137 released at Chernobyl as estimated by the U.S. National Council on Radiation Protection (NCRP)." Experts believe that the amounts are sufficient to "destroy the world environment and our civilization," which makes containment "an issue of human survival." ("The Greatest Single Threat to Humanity: Fuel Pool Number 4," Washington's blog)

The structural integrity of Unit 4's cooling pool was greatly compromised by the earthquake and following tsunami which struck the facility over a year ago. At present, the pools are not adequately protected or reinforced, which means that a sizable tremor could "cause a disaster worse than the three reactor meltdowns." If such a disaster were to occur, "people should get out of Japan, and residents of the West Coast of America and Canada should shut all of their windows and stay inside," says nuclear expert Arnie Gundersen.

While the danger to life and the environment pose the greatest single national security threat the United States has faced since WW2, the Obama administration has provided little aid to the emergency effort. Japan is largely "going it alone" trying to cobble together a plan to safely store the spent fuel and minimize the risks to public safety.

On March 8, 2012, Dr. Hiroaki Koide, Research Associate at the Research Reactor Institute of Kyoto University, gave his bleak assessment of the situation on the Japanese a news program called, "Morning Bird." Koide explained how 1,500 rods are presently located in a "fuel pool" that has been severely damaged. The rods have to be cooled constantly or a "huge amount of radiation contained in the spent fuel will be released outside." If an earthquake hits and undermines the pool, the coolant will exit the pool, the rods will melt and radioactive plumes will rise into the atmosphere. Koide explained that the rods could not be safely removed from the existing pool because "if you hoist them up in the air, huge amounts of radiation will come out from the spent fuel and people nearby will die."

One of the journalists on "Morning Bird" asked Koide what would happen if the Unit was struck by another earthquake?

Koide answered, "That will be the end."

"The end?" the journalist asked, visibly shaken.

"The end," Koide repeated emphatically. ("Fukushima Dai-Ichi No. 4: An earthquake before spent fuel rods are moved to safe storage would be "the end," Lambert Strether, Naked Capitalism)

Now, check this out:

"Japan's former Ambassador to Switzerland, Mr. Mitsuhei Murata... strongly stated that if the crippled building of reactor unit 4 -- with 1,535 fuel rods in the spent fuel pool 100 feet (30 meters) above the ground -- collapses, not only will it cause a shutdown of all six reactors but it will also affect the common spent fuel pool containing 6,375 fuel rods, located some 50 meters from reactor 4. In both cases the radioactive rods are not protected by a containment vessel; dangerously, they are open to the air. This would certainly cause a global catastrophe like we have never before experienced. ... Such a catastrophe would affect us all for centuries." ("Fukushima Daiichi Site: Cesium-137 is 85 times greater than at Chernobyl Accident," akiomatsumura.com)

Murata's concerns have been brought to the attention of the UN Secretary General Ban Ki-moon, to high-ranking officials in the Obama administration and EU, and to leaders around the world. The reaction has basically been the same everywhere, which is, "It's Japan's problem. Let them deal with it."

There is no way to overstate the media's complicity in concealing critical information about the tragedy that is presently unfolding at Fukushima. If there is another earthquake, the media will certainly be every bit as responsible as the government officials who saw the danger, but chose to do nothing.

Police Forcibly Evict Midwest Occupy Conference Participants; 14 Arrested In St. Louis

Where does the Constitution say that freedom of speech ends at 10 pm? I am just SO curious about THAT.

The use of force is INTIMIDATION and I hope that all who were there sue the Department's arse off. That is the ONLY way "they" seem to learn.

News said a police cruiser's window was broken BUT photo, time-stamped evidence disputes this. It is not only the arrests that need to be called into question, but the mis- and dis-information that is fed to the public.
Read the Article at HuffingtonPost