NEWS,16.09.2012

JPMorgan, Bank Of America Probed Over Money-Laundering Allegations: New York Times

Regulators are investigating whether several major U.S. banks failed to monitor transactions properly, allowing criminals to launder money, according to a New York Times story. The newspaper cited officials who it said spoke on the condition of anonymity.The Office of the Comptroller of the Currency, the federal agency that oversees the biggest banks, is leading the money-laundering investigation, according to the Times. The report said the OCC could soon take action against JPMorgan Chase & Co., and that it is also investigating Bank of America Corp. Money laundering allows people to make money often obtained illegally appear like it came from another source.The OCC, JPMorgan and Bank of America declined to comment.The financial industry is struggling to mend its public image. Four years after the financial crisis, banks are getting closer scrutiny. And regulators are under pressure to show that they're not missing any questionable activity.This summer, British bank Barclays PLC settled charges that it had manipulated a key global interest rate. Standard Chartered PLC, also based in the U.K., agreed to settle charges that it had improperly processed money for Iran, brought by the New York Department of Financial Services after the bank voluntarily informed regulators that it was reviewing relevant practices. In the spring, JPMorgan surprised shareholders with an unexpected trading loss.If the OCC takes action, it could be similar to a cease-and-desist order that it filed against Citigroup in April. At the time, the OCC said that Citi had deficient internal controls and anti-money laundering procedures. In bank regulation, a cease-and-desist order doesn't mean that a bank has to shut down, but it is a serious sanction that requires a bank to change its practices. Citi had already told the regulator that from 2006 to 2010, it had "failed to adequately monitor" some of its transactions connected to "foreign correspondent banking."The order in April didn't make any new, specific accusations. But it did instruct Citigroup to tighten its rules so it could improve compliance with the Bank Secrecy Act and related regulations. The act requires financial institutions to report suspicious activity and to put rules in place to try to make money laundering impossible for customers.Last year, JPMorgan paid $88 million to settle charges from the Treasury that it had unlawfully processed money for Cuba, Iran, Sudan and Liberia.At the time, JPMorgan said it had had no intent to violate regulations. It pointed out that it oversaw "hundreds of millions of transactions and customer records per day, and annual error rates are a tiny fraction of a percent."It's not expected that banks would be accused of trying to show support for countries like Cuba and Iran. It's more likely that they would be accused of faulty oversight that made any unlawful transactions possible. The industry has maintained that such violations are almost always unintentional.According to the Times, the Justice Department and the Manhattan district attorney's office are also involved. The Manhattan U.S. attorney's office and the Manhattan district attorney's office declined to comment.

 

Iran's Nuclear Timeline

 

Iran is nuclear capable. If Iran's leaders decided they wanted a nuclear bomb, they could build one. They have the material, the technical ability, and likely have a design. They have had these capabilities for at least five years, when they accumulated enough raw material that could be converted into the core of a bomb.But Iran does not have a bomb now. U.S. intelligence officials have high confidence that Iranian leaders have not made the decision to build a bomb. There is much confusion  some of it intentionally spread about how long it would take Iran to build a weapon.An outstanding team of seasoned national security experts has just published a clear, detailed explanation of Iran's nuclear timeline. The report of the Iran Project was endorsed by 34 security leaders, including Brent Scowcroft, Sam Nunn, Gen. Tony Zinni, Adm. James Fallon, Gen. Frank Kearney, Carla Hills, Anne Marie Slaughter, Chuck Hagel, Adm. Joe Sestak, Jessica Mathews, Zbigniew Brezinski, Nicholas Burns and this author.Here is an excerpt from the report (on p. 22) that provides a sound basis for debating what actions should be taken to convince Iran not to build nuclear weapons. This report is intentionally conservative. There may be serious technical problems that make the timeline much longer. I have highlighted in bold key phrases.While there are differences of opinion on this issue, we believe it would be extremely difficult for Iran to hide a nuclear program devoted to weapons development. No monitoring and detection system is failure-proof, but Iran has little reason to be confident that it could get away with creating a secret program to produce fissile material for a weapon.Were Iran to attempt to produce a single bomb's worth of highly enriched uranium (HEU), it would take at least one month (although some experts believe the timeline could be as long as four months or more). It is important to note that while the ability to build a single bomb is a somewhat useful theoretical construct, it has little or no correspondence to how nuclear weapons programs function in the real world.Historically, no country in the nuclear age has sought as its goal to build one nuclear weapon; nor has any country adopted a strategy of building one weapon knowing that as a consequence, its program would be exposed. The timeline for producing a single bomb's worth of HEU is subject to change, depending on the number and type of operational centrifuges available as well as the size of Iran's stockpile of already enriched uranium, particularly 20% enriched uranium. Conservatively, it would take Iran a year or more to build a military-grade weapon, with at least two years or more required to create a nuclear warhead that would be reliably deliverable by a missile.In short, it is likely that the United States would receive some warning and have at least a month to make a decision on action -- military or other. Understanding the difference between the one-month timeline of producing sufficient fissile material in order to produce a weapon, and the two-year timeline of creating a nuclear warhead, is critical when considering the likely success of military action.After a month, the weapons-grade uranium (WGU) could be reduced significantly in size (25 kilograms); if properly encased, it could be easily hidden and would be highly mobile. This would be a very hard target to detect and destroy. While it would take some additional time for Iran to translate the WGU into a meaningful military capability, the ability for the United States or others to launch preventive military strikes would be reduced. In contrast, the facility used to enrich the WGU is immobile and large and therefore an easier and somewhat vulnerable target (unless deeply buried)....The more apparent the decision to make a weapon, the more persuasive the justification for military action would be to the international community, including the United Nations Security Council. While Israel's more limited military capabilities and earlier "red line" create a closing window of opportunity to take military action, the U.S. could afford to wait for its red line to be crossed Iran undertaking a dedicated weapons program before deciding whether to take preventive military action....Given the deepening mutual distrust between the U.S. and Iran; congressional sympathy for Israel's perspective on a nuclear-capable Iran; and the conviction among some parties that Iran has already secretly decided to build a nuclear weapon, we believe the most likely military scenario is one in which preemptive, unilateral action against Iran is initiated by the U.S. and/or Israel, under conditions of some uncertainty about Iran's real intentions.

NEWS,11.08.2012

Globalization and the Lessons of History

 

As the U.S. economy struggles to recover from the worst recession in 70 years, we face a new, much more challenging world. Economic globalization means that more countries are exporting their goods, generating first-rate research, and attracting investments: besides China, we compete with Brazil, India, South Korea, and Turkey. Although terrorism, elections, and natural disasters dominate headlines, globalization has been the most powerful trend over the last thirty years. Despite the recession, it shows no sign of abating. Dealing with globalization may tempt us to see other countries as simply our competitors or worse, as our enemies. If we are to deal with globalization more wisely, the lessons of history are crucial to understand.Globalization is not completely new. A century ago, the world economy went through a similar dramatic expansion. "For economic purposes all mankind is fast becoming one people," wrote James Bryce in 1903. For the first time, a world wide web of telegraph lines, centered on London, sent news and prices around the globe. The United States became an industrialized country because of millions of immigrants and a mountain of European investment. Tragically, the first era of globalization ended badly in two world wars, Communism, fascism, the Great Depression, and the Cold War. Why? Those who suffered from rapid economic change were often recruits for violent solutions; war could undo decades of economic progress. In short, those who gained from economic globalization became complacent about the need to maintain it and cavalier about the costs it generated. Old industries declining, migration, social problems in rapidly expanding cities all of these occur almost inevitably with economic growth. If social policies do not cushion the costs and help people adjust to the changes set off by economic growth, the entire system supporting economic growth can be undermined. At the same time, international peace and cooperation have been crucial to economic globalization. Prosperity in the long run depends on peace. The first era of globalization occurred in the late nineteenth century because Europe experienced the longest period of peace in its history. Only one, brief war the Crimean War occurred among more than two of the Great Powers. World War One broke out in part because leaders in Germany thought they could use violence to strengthen their country's position in the world economy. Instead, they nearly destroyed the entire world economy, and brought on more war. By the time Europe stabilized again, after a second, more awful war, the world economy was no bigger than it had been 35 years earlier, with a much larger population to feed.History also teaches us that we can do better. Nothing illustrates that nations can learn from the past as much as the difference between what the United States did in 1919, at the end of the First World War, and what we did in 1945-48, after the Second. In 1919, we turned our back on Europe and its problems. The world economy limped along and eventually collapsed into the Depression, while the unsolved problems of the War led to dictatorships and more war. After 1945, we did better. The United States created a range of international institutions in the late 1940s the UN, IMF, World Bank, NATO, the alliance with Japan, and the GATT, the forerunner of today's World Trade Organization. We also helped Europe set up what eventually became the European Union. With all their imperfections, these institutions and the cooperative agreements they support still provide a framework for worldwide economic growth. Because of them, we can travel, send money, buy and sell goods, and communicate among the nations of the world in a way that would have been unimaginable just a few decades ago.In tough times, it may be tempting to turn our backs on the rest of the world or to think that economic growth, once begun, runs on its own. But we depend on our global economic ties for future growth. By investing in our greatest resource  people  and improving our transportation and communications infrastructure, we can compete much more effectively than by tariffs or trade disputes. The history of the last century teaches us that dealing with the inevitable costs of globalization and working to maintain a peaceful world order are essential to all of us. Our generation has an opportunity to make great gains from a return to worldwide economic growth  but we must distribute the gains more fairly and work to build a cooperative international order. Our competitors are also our customers and our potential partners in a better world.

Federal Investigators Punt On Goldman Sachs Prosecutions

 

By 2006, Goldman Sachs traders knew that the investments packed with subprime home mortgages they had been selling at big profits for the last few years were more dangerous than they were letting on.Internally, they characterized these offerings as "junk,""dogs,""big old lemons" and "monstrosities." Nevertheless, the bank congratulated itself for successfully offloading the mortgage bonds onto others. The head of the bank's mortgage department extolled its success in reducing its subprime inventory, writing that his team had "‘worked their tails off to make some lemonade from some big old lemons.” These findings, included in the report released by the Financial Crisis Inquiry Commission nearly two years ago, helped inform at least one major regulatory enforcement action against the bank: a $550 million settlement with the Securities and Exchange Commission for misleading investors about the risks of a product known as Abacus. For a while, it seemed that a string of similar enforcement actions involving other mortgage investment products, whose eventual collapse in value brought down the housing market and very nearly the American economy, were imminent. On Thursday, Goldman Sachs announced in a regulatory filing that the SEC had dropped its investigation into a $1.3 billion mortgage bond known as Fremont Home Loan Trust 2006-E, even though it indicated earlier this year that charges were likely. Later in the day, the Department of Justice said it was ending its own Goldman investigation, launched after a congressional investigation chaired by senators Carl Levin (D-Mich.) and Tom Coburn (R-Okla.) issued a report that found Goldman Sachs sold investments "in ways that created conflicts of interest with the firm’s clients and at times led to the bank's profiting from the same products that caused substantial losses for its clients.”"The department and investigative agencies ultimately concluded that the burden of proof to bring a criminal case could not be met based on the law and facts as they exist at this time," the Justice Department said in a statement late on Thursday. Reuters reported that David Wells, a spokesman for Goldman Sachs, said in an email, "We are pleased that this matter is behind us."The SEC did not immediately respond to a request for comment. For industry critics, the decisions to drop the investigations are the latest indication that the federal government's law enforcement response to the greatest financial catastrophe since the Great Depression will end with a whimper. "I'm shocked but not surprised," said Simon Johnson, a former chief economist at the International Monetary Fund, and a Huffington Post contributor. "It reflects a pattern of failing to hold these large institutions accountable. To not even try sends a double signal, that there are different standards for us and for Wall Street."Johnson said he still holds out some hope for a grand settlement that would provide some financial compensation for the homeowners most damaged by the inflated pricing that came as a result of the bubble built by Wall Street.Neil Barofsky, the former special inspector general for the Troubled Asset Relief Program, and a frequent critic of the Obama administration's handling of the financial crisis, said in an email that the announcements are "a stark reminder that no individual or institution has been held meaningfully accountable for their role in the financial crisis." "Without such accountability, the unending parade of megabank scandals will inevitably continue," Barofsky said. Of the two federal agencies, the record of the Department of Justice in pursuing financial crisis cases is the thinnest. So far, the Justice Department has brought just one case, which ended when a federal jury in 2009 acquitted two Bear Stearns hedge fund managers accused of lying to investors about the soundness of the securities they were selling. After that, the Justice Department decided not to pursue cases against two men whose actions most Wall Street observers agree brought on the crisis: Angelo Mozilo, the former head of the defunct mortgage giant Countrywide and Joseph Cassano, who ran the financial products division at AIG.The SEC's track record has been a bit better, at least in terms of dollar recoveries. The regulator won about $2 billion in penalties since 2008 in financial crisis-related cases, including a record $67.5 million from Mozillo. The agency has been dogged, though, by complaints including from federal judge Jed Rakoff that its penalties are too small, doesn't target individuals and doesn't require defendants to admit guilt as part of settlement agreements. In May, the SEC dropped its probe of Lehman Brothers, even though an independent examiner appointed by the bankruptcy court of the defunct bank concluded that there were "actionable claims" against senior Lehman officers for using an accounting tool known as Repo 105 to book billions of dollars in phony sales to disguise the true extent of the bank's financial woes. Financial cases of any stripe, especially those that involve complex transactions involving structured finance products, are difficult to prove, said Arthur Wilmarth, a banking law professor at George Washington University. Even so, he said, he believes the SEC could have brought additional cases against Goldman Sachs that involved conduct similar to the Abacus deal. The agency could prevail in civil penalty actions by showing that Goldman "intentionally or recklessly misled investors," he said. That, in essence, is the argument made by another regulator the Federal Housing Finance Agency which filed a lawsuit against Goldman over the Fremont investment and other offerings last year. Goldman bankers knew that Fremont, a subprime lender, was selling it mortgages certain to fail, the suit alleges.Goldman knew of the originators’ abandonment of applicable underwriting guidelines and of the true nature of the mortgage loans it was securitizing," the lawsuit claims. The decision to drop the Goldman Sachs investigation also comes on the heels of a disappointing loss for the SEC in one of the very few trials involving a Wall Street executive accused of misleading investors about a mortgage product. A few weeks ago, a federal jury acquitted Brian Stoker, a mid-level Citigroup executive, of wrongdoing over his role in selling a $1 billion mortgage bond. In an unusual move, however, the jury included a note with its verdict urging the agency not to give up. “This verdict should not deter the SEC from continuing to investigate the financial industry, review current regulations and modify existing regulations as necessary,” said the statement, which was read aloud by Judge Jed Rakoff.