Tuesday, March 19, 2013

Mapping the 'Demand' Side of Prostitution - Jobs & Economy - The Atlantic Cities

Mapping the 'Demand' Side of Prostitution - Jobs & Economy - The Atlantic Cities

The town of Kennebunk, Maine, recently made headlines for releasing the identities of men charged with patronizing a Zumba instructor-turned-prostitute named Alexis Wright. Despite all the attention, the strategy of "john shaming" is far from unique. It's just one of several tactics city and county police departments across the country routinely use to target the men who pay for sex, rather than the women who sell it.
Michael Shively of the Cambridge, Massachusetts, research firm Abt Associates has spent the past several years gathering loads of information about strategies that aim to reduce the "demand" side of prostitution. Shively and his colleagues have compiled a database of at least 825 cities that employ at least one of these tactics. The work has produced comprehensive reports for the Department of Justice [PDF] as well as a new website called DEMANDForumthat tracks the "anti-demand initiatives" occurring across the United States:
Shively's work has shown that targeting demand can be much more useful than arresting the so-called "supply" side of prostitution: the women themselves, or the pimps trafficking sex. Most communities begin by sweeping the streets for the suppliers of sex, but ultimately find the approach ineffective, he says. The women are often victims themselves who've been forced into the trade for various reasons, and the pimps are easily replaceable once they're taken off the street.

Often women can be R loners that hide in the Ro community and sell sex, they are preyed upon by Oy men and pimps acting as agents for a Y mafia. Exposing Oy-R interactions can help the problem because it works best with secrecy and deception. Oy pimps can grow in numbers exponentially as can clients when there is demand, also taking some R women off the streets just makes it more profitable for others to enter the profession. This is a disconnect caused by weak and biased O policing, R women might not fall through the chaotic cracks of the Ro safety net with more community cooperation. However colors will always manifest to some degree, problems can only be moderated to minimize problems. Legalizing brothels brings them into a neutral I market policed by O, enough transparency moderates exploitation of R and B women as well as reducing R contagion of venereal diseases.

Murder rates: There will be less blood | The Economist

Murder rates: There will be less blood | The Economist

Innovative police efforts, like CompStat, a crime-mapping system, and the “broken-windows” strategy, which focuses on restoring order to communities, were implemented in New York in the early 1990s, and crime rates began to fall.

Communities can be prone to chaotic collapse, R and B people are more timid and when they see signs of broken windows, vandalism, etc they might flee the area. it can then become more taken over by criminals without much opposition. Other areas might have a strong Ro community acting like Neighborhood Watch that resists this crime, backstopping the O police to clean up even small amount sof this chaos. The Broken Window policy then could work not as a policy but because it came along with widespread Ro community anger.

More recently department officials have been trying Operation Impact, a programme which floods troubled areas with police, mostly new recruits. Crime in these “hotspots” tends to drop at twice the citywide rate. The controversial stop-and-frisk policy, under which people suspected of criminal activity are stopped and checked for weapons, is also considered helpful. Ray Kelly, the police commissioner, claims that such proactive policing saved over 5,600 lives between 2002 and 2011.

This is like treating crime as Oy-R contagion, before it grows too much exponentially a surge in police causes it to hit a ceiling and collapse. It can be like controlling an R contagion such as rats or cockroaches by faster fumigating problem areas before they spread. A hot spot is high energy Oy-R.
Some of the tactics used in New York have made their way to the District, where Cathy Lanier, the police chief, credits her department’s crackdown on guns and gangs for the recent decline in violence. As with Mr Kelly, there has been some controversy along the way, for instance when she set up checkpoints around an especially gang-plagued neighbourhood, or proposed that police should go door-to-door in search of guns.

Gangs are usually Y or Ro based rather than being a plague of Oy or R loners. Often Ro gangs evolve as self policing of a neighborhood because of O police mistrust.

Some see her efforts as more public-relations than policing, but it is hard to argue with the results.

21st-Century Yakuza: Recent Trends in Organized Crime in Japan ~Part 1

21st-Century Yakuza: Recent Trends in Organized Crime in Japan ~Part 1 21世紀のやくざ ―― 日本における組織犯罪の最近動向 :: JapanFocus

Andrew Rankin

I - The Structure and Activities of the Yakuza

Japan has had a love-hate relationship with its outlaws.  Medieval seafaring bands freelanced as mercenaries for the warlords or provided security for trading vessels; when not needed they were hunted as pirates.1   

Oy can act as agent predators for Y warlords or be hunted by Y when they turn on them.

Horse-thieves and mounted raiders sold their skills to military households in return for a degree of tolerance toward their banditry. 

This is like the O police that use Oy thieves as snitches in exchange for leniency, this helps to control the Y gangs.

 In the 1600s urban street gangs policed their own neighborhoods while fighting with samurai in the service of the Shogun.  

Ro gangs act like the Ro part of the O police along with some Oy thieves to balance the system, the samurau can be Y.

Feudal lords paid gang bosses to supply day laborers for construction projects.  

Feudal lords can be Y using Oy agents to supply R laborers as prey to work on these projects. 

In the 1800s gambling syndicates assisted government forces in military operations.3   Underworld societies joined with nationalists to become a significant force in politics. 

The underworld is usually Oy because they are secretive, they join Y as agents. Y is nationalistic defending a territory as their own like Y lions.

 For many years police colluded profitably with pickpocketing gangs before being ordered to eliminate them in a nationwide crackdown of 1912.4  

O police can be corrupted by Oy gangs or use them as snitches against Y. When this contagion grows too large there is a crackdown forced from Ro community anger and the Oy thieves collapse chaotically. This is like Ro herd animals like buffalo fighting back against Oy predators like hyena, when there are O animals between them then the Oy hyena are more easily deterred.

 In the 1920s yakuza bosses were elected to the Diet.5   In the postwar era police struggled to control violent street gangs.  Business leaders hired the same gangs to impede labor unions and silence leftists.  

Nationalist governments can become associated with Y mafia, after the war the O police were weakened and unable to control Oy gangs. these Oy were used by Y businesses to attack Ro communist inspired unions and silence R leftists. 

When Eisenhower planned to visit Japan in 1960, the government called on yakuza bosses to lend tens of thousands of their men as security guards.6  

Oy agents as security guards to control Ro-R unrest and protests.

 Corruption scandals entwined parliamentary lawmakers and yakuza lawbreakers throughout the 1970s and 1980s.  One history of Japan would be a history of gangs: official gangs and unofficial gangs.  The relationships between the two sides are complex and fluid, with boundaries continually being reassessed, redrawn, or erased.

Y and Oy are similar to each other except that Y are cooperative teams while Oy are more competitive loners. However people can move from one to the other so the boundary is fluid.

The important role played by the yakuza in Japan’s postwar economic rise is well documented.7   But in the late 1980s, when it became clear that the gangs had progressed far beyond their traditional rackets into real estate development, stock market speculation and full-fledged corporate management, the tide turned against them.  For the past two decades the yakuza have faced stricter anti-organized crime laws, more aggressive law enforcement, and rising intolerance toward their presence from the Japanese public.

As a Roy economy becomes more Biv wealthy Y criminals can become V businessmen but still use dishonest tactics, this can threaten a new Biv forest economy like Y animals hunting there.


The ‘ultimate symbiosis’ between the yakuza and the police that Karel van Wolferen described in 1984 does not endure today.9   Police hostility to the yakuza has intensified, with more raids of yakuza offices and yakuza-run businesses, more arrests of senior rather than street-level gangsters, and more confiscations of illicit yakuza profits.  ‘Yakuza eradication’ has become popular policy, with politicians, governors, mayors, and lawyers’ associations all proclaiming their resolve to destroy the yakuza once and for all.  Anti-yakuza campaigning has recently extended beyond the traditional yakuza world to address a broader sphere of activities deemed to be undesirable or antisocial.

The O police are rebalancing more towards neutrality after Ro community protests, Oy cannot be destroyed but only moderated. If they think this moderation is too severe then snitches will not work with police as there is no leniency to offer them.

However, difficulties in defining the intended targets of these countermeasures, along with a tendency to link organized crime to minority groups or ethnicity, have led some commentators to wonder whether things have gone too far.  The Japanese media reports resistance to burgeoning police powers and concern that some new anti-yakuza legislation may prove harmful to legitimate businesses.  The 21st-century yakuza must also deal with competition from organized gangs of non-yakuza criminals and from foreign crime gangs active in Japan.  Before examining these issues, let us first take a broad look at the state of organized crime in Japan today.

Mass Incarceration and Criminal Justice in America : The New Yorker

Mass Incarceration and Criminal Justice in America : The New Yorker

Six million people are under correctional supervision in the U.S.—more than were in Stalin’s gulags. Photograph by Steve Liss.

A prison is a trap for catching time. Good reporting appears often about the inner life of the American prison, but the catch is that American prison life is mostly undramatic—the reported stories fail to grab us, because, for the most part, nothing happens. One day in the life of Ivan Denisovich is all you need to know about Ivan Denisovich, because the idea that anyone could live for a minute in such circumstances seems impossible; one day in the life of an American prison means much less, because the force of it is that one day typically stretches out for decades. It isn’t the horror of the time at hand but the unimaginable sameness of the time ahead that makes prisons unendurable for their inmates. The inmates on death row in Texas are called men in “timeless time,” because they alone aren’t serving time: they aren’t waiting out five years or a decade or a lifetime. The basic reality of American prisons is not that of the lock and key but that of the lock and clock.

In Aperiomics the I-O police can penalize people with time or energy. Time can be taken from people as a penalty by incarceration or execution, also in go slow impediments like checking in with parole officers and losing a driving license. Energy can be penalized as well,  prisoners might be denied exercise an confinement prevents people from expending energy in doing things they would like. For example a highly energetic Iv agent jailed for a year might lose the amount of energetic work he would have done in that year, this is a bigger penalty to him than to a Bi criminal who would not have been doing much with his time anyway. Iv then fears losing the use of his energy, Bi people fear the loss of their time.
That’s why no one who has been inside a prison, if only for a day, can ever forget the feeling. Time stops. A note of attenuated panic, of watchful paranoia—anxiety and boredom and fear mixed into a kind of enveloping fog, covering the guards as much as the guarded. “Sometimes I think this whole world is one big prison yard, / Some of us are prisoners, some of us are guards,” Dylan sings, and while it isn’t strictly true—just ask the prisoners—it contains a truth: the guards are doing time, too.

For most privileged, professional people, the experience of confinement is a mere brush, encountered after a kid’s arrest, say. For a great many poor people in America, particularly poor black men, prison is a destination that braids through an ordinary life, much as high school and college do for rich white ones.

The scale and the brutality of our prisons are the moral scandal of American life. Every day, at least fifty thousand men—a full house at Yankee Stadium—wake in solitary confinement, often in “supermax” prisons or prison wings, in which men are locked in small cells, where they see no one, cannot freely read and write, and are allowed out just once a day for an hour’s solo “exercise.”

The Myth of Self-Correcting Science

The Myth of Self-Correcting Science - Sarah Estes - The Atlantic

The Myth of Self-Correcting Science

 5Recent academic scandals highlight a history of data falsification and questionable research in social psychology, and serve as calls to action. 

Carlos Jasso/Reuters
Over the last two years, the field of psychology has endured a wave of scandal bookended by fraud cases involving Harvard primatologist Marc Hauser and Dutch social psychologist Diederik Stapel. Even researchers desensitized by scandal-fatigue did a double take when the final report on Stapel's case came out last month. The extent of his creative misinterpretation of the facts make the Hauser case look like child's play. Stapel not only manipulated and fabricated data, he invented entire schools where said data was allegedly collected.

Because science has no real I-O police for research then this Iv-b and V-Bi disconnect can grow quite large, the penalties might be low such as losing a job or research grant.

As if the fraud files weren't enough, then come the mea culpas -- salt in the wounds for students and colleagues still recovering from shattered reputations and a shaken faith in science. The two men released two very different statements telling very similar stories of reckless, ruthless ambition and playing the odds against getting caught. Stapel's "narcissistic wail" was so emotional and contrite as to seem a bit unhinged, while Hauser's read as a cold, calculating non-admission of guilt.
Hauser deftly concedes chagrin for errors made within his lab "whether responsible for them or not," implying that the same students bullied into committing academic fraud were somehow responsible for the car veering off the cliff. Stapel faults a noxious combination of publication pressures, addictive tendencies, and assorted personality issues for his downfall. And while publication pressure was among those issues, he caps off his mea culpa with a plug for his new book -- Derailment, a collection of his therapeutic diaries.

Scientists can become Iv agents in effect committing fraud for the commission of higher wages, research grants, jobs, etc. These are considered to be errors from normal practice, the normal center of V-Bi. This abnormal behavior can reach a tipping point or Iv-B ceiling and go off the cliff into free fall where those fastest at distancing themselves from the problem while profiting at the time do best.

The Slippery Slope
It's easy to revel in the high drama surrounding the downfall of a Hauser or Stapel, but what about the journals that published these scholars? Stapel was a widely cited and highly revered figure. His fraud went undetected for decades in spite of eerily perfect data sets and improbable statistical values. According to Tilburg University's final report, Flawed Science, "There was a general neglect of fundamental scientific standards and methodological requirements from top to bottom."

When journals become agents for V companies and universities rather than neutral I then chaos can grow secretly until it hits a ceiling and crashes.

Scientists fought back, noting that it is rare for reviewers in any field to detect fraud and demanding an apology for the 'slanderous conclusions' drawn in the report.

Without I-O police being available for whistle blowers there is little incentive for scientists to moderate this chaos before it collapses. Instead they try to profit from it and get out before it hits the ceiling.

Social psychologist Kate Ratliff,teaching at Tilburg when the scandal broke noted, " It's a small community and people considered Diederik a friend and mentor...No one understands why these young researchers didn't realize that it was weird that Diederik was giving them datasets. But you learn from watching others. And if there are no others, how would you know what's weird or not? I think that people started out being really sympathetic toward them and have gotten more and more punitive as time passes and hindsight bias kicks in. I think that's really, really unfair."

In Iv-B people think tactically and compete with each other in a secretive environment, if others are doing something then it seems ok and the objective is to beat them. This makes the problem grow exponentially until it hits a ceiling.

They managed to find statistically significant evidence for the absurd hypothesis that listening to a Beatles song could make you 1.5 years younger
Almost more alarming than the few individuals committing academic fraud are the high percentage of researchers who admitted to more common questionable research practices, like post-hoc theorizing and data-fishing (sometimes referred to as p-hacking), in a recent study led by Leslie John.
For the uninitiated: post-hoc theorizing involves creating or revising a hypothesis after you've collected the data; data-fishing entails running a study, continually checking the data after each participant, and stopping as soon as you see a significant result. These practices are eschewed by some, but plenty of others embrace them. Joseph Simmons and colleagues ran a simulation showing how unacceptably easy it was to attain statistical significance using these 'degrees of researcher freedom.' By employing four of these questionable practices at once, they managed to find statistically significant evidence for the absurd hypothesis that listening to a Beatles song could make you 1.5 years younger.

V-Bi statistics can be affected by chaos as the vertical part of Pascal's Triangle, Iv-B researchers can manipulate data chaotically so it is no longer random.

The Lie that Prosecuting Bank Fraud Will Destabilize the Economy Is What Is REALLY Destroying the Economy | The Big Picture

The Lie that Prosecuting Bank Fraud Will Destabilize the Economy Is What Is REALLY Destroying the Economy | The Big Picture

By Washingtons Blog - December 23rd, 2012, 1:30AM

Failing to Prosecute White Collar Crime Guarantees a Weak and Unstable Economy … and Future Financial Crashes


The Departments of Justice and Treasury are pretending that criminally prosecuting criminal banksters will destabilize the economy.
The exact opposite is true.

When the I civil police become biased to Iv then they can also be deceptive for their own advantage, for example to cover up their own previous incompetence or corruption.

Failing to prosecute criminal fraud has been destabilizing the economy since at least 2007 … and will cause huge crashes in the future.

A weak I-O police cause a disconnect in the economy where Iv-B and V-Bi become separated, this Iv-B component tends to boom and bust with fraud and secrecy.

After all, the main driver of economic growth is a strong rule of law.

This moderates the disconnect so companies grow more like trees that are stable rather than Iv-B weeds and V-Bi grass.

Nobel prize winning economist Joseph Stiglitz says that we have to prosecute fraud or else the economy won’t recover:

If I-O is not strengthened then stimulus or new resources will tend to feed the Iv-B weed companies first which mutate and then collapse. 

The legal system is supposed to be the codification of our norms and beliefs, things that we need to make our system work. If the legal system is seen as exploitative, then confidence in our whole system starts eroding. And that’s really the problem that’s going on.
This is part of the cycle of color imbalance, it starts at B where diminishing Gb resources cause weakness and then economic problems spread up the Biv economy. The legal system is composed of Bi normal represented on a normal curve as to what people think is normal behavior or deviant. It also has an Iv component where exploitive and competitive behavior is allowed to some degree even if deviant because people have rights even if abnormal. in between these two there is always uncertainty which is why the legal system tries to chart a middle course between these two.


I think we ought to go do what we did in the S&L [crisis] and actually put many of these guys in prison. Absolutely. These are not just white-collar crimes or little accidents. There were victims. That’s the point. There were victims all over the world.
When resources are scarce people turn to O crime rather than just I civil infractions of the law, Y-Oy predatory business looks for prey among Ro-R people in a negative sum game.

Economists focus on the whole notion of incentives. People have an incentive sometimes to behave badly, because they can make more money if they can cheat. If our economic system is going to work then we have to make sure that what they gain when they cheat is offset by a system of penalties.
Often these penalties need to be O criminal because when resources are scarce I civil penalties are just deducted against the profits made. The exception is when resources are abundant and it is easier to make more honest money in a positive sum game than to steal so much that others lose money.

Nobel prize winning economist George Akerlof has demonstrated that failure to punish white collar criminals – and instead bailing them out- creates incentives for more economic crimes and further destruction of the economy in the future.

Bailing out Iv-B companies is like putting fertilizer on weeds in the hope they will evolve into more stable plants. Better to weed them out and use this fertilizer on balanced Biv companies.

Indeed, professor of law and economics (and chief S&L prosecutor) William Black notes that we’ve known of this dynamic for “hundreds of years”. And see thisthisthis and this.
(Review of the data on accounting fraud confirms that fraud goes up as criminal prosecutions go down.)
The Director of the Securities and Exchange Commission’s enforcement division told Congress:
Recovery from the fallout of the financial crisis requires important efforts on various fronts, and vigorous enforcement is an essential component, as aggressive and even-handed enforcement will meet the public’s fair expectation that those whose violations of the law caused severe loss and hardship will be held accountable. And vigorous law enforcement efforts will help vindicate the principles that are fundamental to the fair and proper functioning of our markets: that no one should have an unjust advantage in our markets; that investors have a right to disclosure that complies with the federal securities laws; and that there is a level playing field for all investors.
The I-O police are slowly strengthening against Y-V companies after the economy hit the Iv-B ceiling. The Y-V top of the food chain is usually the last to lose money. 
Paul Zak (Professor of Economics and Department Chair, as well as the founding Director of the Center for Neuroeconomics Studies at Claremont Graduate wrote a paper called Trust and Growth, showing that enforcing the rule of law – i.e. prosecuting white collar fraud – is necessary for a healthy economy.

The problem is color rebalancing follows a set process, the I-O police are still weak after deregulation as Iv agents pressed for more freedom to exploit B clients. The momentum of change has not yet become strong enough, this can also be because of not enough Iv whistle blowers showing the true causes if the GFC.

One of the leading business schools in America – the Wharton School of Business – published an essay by a psychologist on the causes and solutions to the economic crisis. Wharton points out that restoring trust is the key to recovery, and that trust cannot be restored until wrongdoers are held accountable:
According to David M. Sachs, a training and supervision analyst at the Psychoanalytic Center of Philadelphia, the crisis today is not one of confidence, but one of trust. “Abusive financial practices were unchecked by personal moral controls that prohibit individual criminal behavior, as in the case of [Bernard] Madoff, and by complex financial manipulations, as in the case of AIG.” The public, expecting to be protected from such abuse, has suffered a trauma of loss similar to that after 9/11. “Normal expectations of what is safe and dependable were abruptly shattered,” Sachs noted. “As is typical of post-traumatic states, planning for the future could not be based on old assumptions about what is safe and what is dangerous. A radical reversal of how to be gratified occurred.”
The Bi community had their concept of normal business shattered by Iv-B chaos, this occurred in part because of a bias in the I-O police towards Iv agents allowing secretive problems to become systemically large.

 People now feel more gratified saving money than spending it, Sachs suggested. They have trouble trusting promises from the government because they feel the government has let them down.

V-Bi people like to save money rather than look for growth, this creates stagnation. The Iv-B growth parts oft he economy are still disconnected because of mistrust and because the I-O police are no longer believed to be stemming this chaos.
He framed his argument with a fictional patient named Betty Q. Public, a librarian with two teenage children and a husband, John, who had recently lost his job. “She felt betrayed because she and her husband had invested conservatively and were double-crossed by dishonest, greedy businessmen, and now she distrusted the government that had failed to protect them from corporate dishonesty.
They were B and chaotically deceived by Iv agents because of weak I-O policing, also because of other deceptive B people using liar loans which fed the deception from below. 

Not only that, but she had little trust in things turning around soon enough to enable her and her husband to accomplish their previous goals.
“By no means a sophisticated economist, she knew … that some people had become fantastically wealthy by misusing other people’s money — hers included,” Sachs said. “In short, John and Betty had done everything right and were being punished, while the dishonest people were going unpunished.”
They ended up as R prey to Oy financial predators, this happened because the middle oft he Roy food chain collapsed with weak policing. Usually these Oy predators would be moderated by O criminal penalties. When they weren't they multiplied exponentially like a contagion.

Helping an individual recover from a traumatic experience provides a useful analogy for understanding how to help the economy recover from its own traumatic experience, Sachs pointed out. The public will need to “hold the perpetrators of the economic disaster responsible and take what actions they can to prevent them from harming the economy again.” In addition, the public will have to see proof that government and business leaders can behave responsibly before they will trust them again, he argued.
Weak I-O policing happens in a cycle and will return again.

Note that Sachs urges “hold[ing] the perpetrators of the economic disaster responsible.” In other words, just “looking forward” and promising to do things differently isn’t enough.

If the I-O police don't have enough snitches and whistle blowers then they have to wait for things to actually go wrong before they can try to fix them. 

Robert Shiller – one of the top housing experts in the United States – says that the mortgage fraud is a lot like the fraud which occurred during the Great Depression notes:
Shiller said the danger of foreclosuregate — the scandal in which it has come to light that the biggest banks have routinely mishandled homeownership documents, putting the legality of one of the main causes of the Great Depression.

Chaos grows like cracks in the shape of B roots and Iv branches avoiding I-O police, where there is little oversight contagion like cockroaches will grow in numbers faster. To avoid this random auditing of these areas is like randomly exposing dark areas to look for cockroaches.

Economist James K. Galbraith wrote in the introduction to his father, John Kenneth Galbraith’s, definitive study of the Great Depression, The Great Crash, 1929:
The main relevance of The Great Crash, 1929 to the great crisis of 2008 is surely here. In both cases, the government knew what it should do. Both times, it declined to do it. In the summer of 1929 a few stern words from on high, a rise in the discount rate, a tough investigation into the pyramid schemes of the day, and the house of cards on Wall Street would have tumbled before its fall destroyed the whole economy.
This is usually not possible in a color imbalance which has to work itself through the colors in order. The problem is this color imbalance makes these stern words impossible to deliver or ineffective.

 In 2004, the FBI warned publicly of “an epidemic of mortgage fraud.” But the government did nothing, and less than nothing, delivering instead low interest rates, deregulation and clear signals that laws would not be enforced. The signals were not subtle: on one occasion the director of the Office of Thrift Supervision came to a conference with copies of the Federal says:
There will have to be full-scale investigation and cleaning up of the residue of that, before you can have, I think, a return of confidence in the financial sector. And that’s a process which needs to get underway.
When the I-O police are weakened Iv-B civil infractions of the law grow exponentially but this seems very slow at first, it appears there is plenty of time to stop it. However exponentially growth can quickly zoom up wards when it develops momentum.

Goldman Sachs Executive Director Corroborates Reggie Middleton's Stance: Business Model Designed To Walk Over Clients

Goldman Sachs Executive Director Corroborates Reggie Middleton's Stance: Business Model Designed To Walk Over Clients

And now we have supporting evidence from the inside... From the NYT:
"TODAY is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. I can honestly say that the environment now is as toxic and destructive as I have ever seen it."
"To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money."

As the economy becomes more Roy after the GFC Iv agents become more Oy predatory. Iv tends to look for positive sum games where both sides benefit, Iv agents try to benefit most of all. In Oy there is a scarcity of resources often mixed with G public money, Oy tries to reduce their risk and losses by inflicting more losses on their R or Oy clients. 

"I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work."
" I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave."
 "How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence. What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym."
"I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all."
"It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.
It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.

Iv and Oy use short term competitive tactics, they don't look at what will eventually happen because the object is to make more than others then get out before the crash. If the clients are V banks and companies sometimes becoming Y then they use companies like this as agents, the idea is their agents will gouge others more than them.

These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out” and “getting paid” doesn’t exactly turn into a model citizen."

Sunday, March 17, 2013

America Is a “Failed State” with a “Dual Justice System … One for Ordinary People and then One for People with Money and Enormous Wealth and Power” - Washington's Blog

And the chair of the Financial Crisis Commission, Phil Angelides, said today:
I think there’s a great concern in this country on two fronts. One is there’s a question here, do we have a dual justice system? One for ordinary people and then one for people with money and enormous wealth and power. Secondly, we need deterrents. To the extent laws were broken, we need deterrents. If someone robs a 7-11, they took $500 and they were able to settle the next day for $50 and no admission of wrongdoing, they’d knock over that 7-11 again. And we’ve seen time after time where people and firms have made tens, one hundreds, billions of dollars. They’ve settled charges for pennies on the dollar. At Citigroup for example they represented that they had $13 billion of subprime mortgage exposure when they really had $55 billion. The penalty to the chief financial officer who made $19 million that year, 2007, was $100,000. Goldman was fined $500 million but the date they settled their stock moved up $2 billion. There’s been no real consequence.
Roy penalties are administered by the O police, for example prison. O penalties work better when resources are scarce. In a boom resources can also become scarce, companies might commit fraud if the fines and loss of business because of their reputation is are less than the profits. 

Well I think there’s two things here. Number one is it’s up to the prosecutors to do thorough investigations. That’s what we should expect. We don’t want hangmen justice. We don’t want vengeance, but we want thorough investigations. And if people crossed a line they ought to be prosecuted. But there were a lot of people who bellied up to the line and conducted themselves in a way without the highest standards of ethics or moral conduct that hurt the economy badly.
And I think one of the things that’s most troubling to people is there seems to be very little relationship between who drove this crisis, the big financial institutions, the CEOs, regulators who didn’t do their job, and the people who are paying the price, which are millions of people who have lost their jobs, lost their homes, lost their life savings.
 While the Y-V companies can make the lion's share of profits much of the fraud was driven in Iv-B, dishonest subprime salesmen falsified loan documents that in many cases were already liar loans. The fraud escalated between these two and often the Y-V companies believed these loan documents were true, also Bi pension funds bought subprime bonds based on them.

Saturday, March 16, 2013

What’s Inside America’s Banks? - Frank Partnoy and Jesse Eisinger - The Atlantic

What’s Inside America’s Banks? - Frank Partnoy and Jesse Eisinger - The Atlantic

What’s Inside America’s Banks?

Some four years after the 2008 financial crisis, public trust in banks is as low as ever. Sophisticated investors describe big banks as “black boxes” that may still be concealing enormous risks—the sort that could again take down the economy. A close investigation of a supposedly conservative bank’s financial records uncovers the reason for these fears—and points the way toward urgent reforms.

By  and 

The financial crisis had many causes—too much borrowing, foolish investments, misguided regulation—but at its core, the panic resulted from a lack of transparency. The reason no one wanted to lend to or trade with the banks during the fall of 2008, when Lehman Brothers collapsed, was that no one could understand the banks’ risks. It was impossible to tell, from looking at a particular bank’s disclosures, whether it might suddenly implode.

An Iv-B economy is like a poker game, people win by being secretive and deceptive. When the I-O police are weak this is like poker where people use marked cards, deal from the bottom of the deck, etc as well. When the game itself is untrustworthy people cannot afford to use bluffing in it.

For the past four years, the nation’s political leaders and bankers have made enormous—in some cases unprecedented—efforts to save the financial industry, clean up the banks, and reform regulation in order to restore trust and confidence in the American financial system. This hasn’t worked. Banks today are bigger and more opaque than ever, and they continue to behave in many of the same ways they did before the crash.

A stimulus on Iv-B businesses is like putting fertilizer on weeds in the hope they will turn into trees. They continue to grow secretively and deceptively, then collapse when the resources are wastefully used up. With this color imbalance the V-Iv parts of the economy might still have enough money to buy themselves out of trouble, this is like a Y-Oy empire like the Roman Empire able to get enough wealth from the colonies to cow them into submission for more pillage.

Many banks’ stocks are below “book value” today. This indicates that investors don’t believe the stated value of the assets on banks’ books, or don’t believe banks will be profitable in the future—or both.
Level 3 is hair-raising. The bank’s Level 3 estimates are “generated primarily from model-based techniques that use significant assumptions not observable in the market.” In other words, not only are there no data about the prices at which these types of assets have recently traded, but there are no observable data to inform the assumptions one might use to generate prices. Level 3 contains the most-esoteric financial instruments—including the credit-default swaps and synthetic collateralized debt obligations that became so popular and prevalent at the height of the housing boom, filling the balance sheets of Bear Stearns, Merrill Lynch, Citigroup, and many other banks.
At Level 3, fair value is a guess based on statistical models, but with inputs that are “not observable.” Instead of basing estimates on market data, banks use their own assumptions and internal information. At Level 3, fair value is an uneducated guess.
Surely, one would assume, Wells Fargo’s assets would mostly reside on Level 1, with perhaps a small amount on Level 2. It’s just a simple mortgage bank, right? And it seems inconceivable that Wells Fargo would be loaded with Level 3 investments long after regulators have supposedly purged the banks of toxic assets and nursed them back to health.
Yet only a small fraction of Wells Fargo’s assets are on Level 1. Most of what the bank holds is on Level 2. And a whopping $53 billion—equivalent to more than a third of the bank’s capital reserves—is on Level 3. All three categories include risky assets that might lose value in the future. But the additional concern with Level 2 and Level 3 assets is that banks might have errantly recorded them at values that were inflated to begin with. There is no way to check whether reported values are accurate; investors have to trust the bank’s managers and auditors. Scholarly research on Level 3 assets suggests that they can be misstated by as much as 15 percent at any given time, even if the market is stable. If Wells Fargo’s estimates are that far off, the bank could be sitting on billions of dollars of hidden losses.

This is the Iv-B part of many businesses, stimulus in the economy is more likely to revive these mutated assets in a bubble but it cannot turn them into balanced Biv assets to give reliable growth.

There is an even lower circle of financial hell. It is populated with complex financial monsters once known as “special-purpose entities.” These were the infamous accounting devices that Enron employed to hide its debts. Around the turn of the millennium, the Texas energy-trading firm used these newly created corporations to borrow money and take on risks without recording the liabilities in its financial statements. These deals were called “off-balance-sheet” transactions, because they did not appear on Enron’s balance sheet.
Suppose a company owns a slice—just a small percentage—of another company that has a lot of debt. The first company might claim that it doesn’t need to include all of the second company’s assets and liabilities on its balance sheet. Let’s say we owned shares of IBM. We aren’t suddenly on the hook for all of the company’s liabilities. But if we owned so many IBM shares that we effectively controlled it, or if we had a side agreement that made us responsible for IBM’s debts, common sense dictates that we should treat IBM’s liabilities as our own. A decade ago, many companies, including Enron, used special-purpose entities to avoid common sense: they kept liabilities off the balance sheet, even when they had such control or side agreements.
As in a horror film, the special-purpose entity has been reanimated, and is now known as the variable-interest entity. In the alphabet soup of Wall Street, the acronym has switched from SPE to VIE, but the idea is the same. Big companies create these entities to borrow money and buy assets, but—like Enron—they do not include them on their balance sheets. The problem is especially worrisome at banks: every major bank has substantial positions in VIEs.

These also mutate to avoid the i-O regulators then grow exponentially when there is money available.


In the decades following the 1929 crash, banks were understandable. That’s not because they were financially simple—that era had its own versions of derivatives and special-purpose entities—but because the banks’ disclosures were more straightforward and clear. That clarity sprang from the fear of consequences. The law, as Oliver Wendell Holmes Jr. said, is a prediction of what a court will do. And the broadly scoped laws of that time gave courts wide latitude.
Going to jail for financial fraud was a real risk back then, and bank executives worried that their reputations would be destroyed if a judge criticized what they had done. Richard Whitney, a broker who had been the president of the New York Stock Exchange, was sent to Sing Sing prison in 1938 for embezzlement. “Sunshine Charlie” Mitchell, the president of National City Bank, the predecessor to Citibank, was indicted for tax evasion after the 1929 crash and was also the first of many bankers to testify before the famous Senate Pecora Committee in 1933. The Pecora investigation galvanized public opinion, and helped usher in the landmark banking and securities laws of 1933 and 1934. The scrutiny and continuing threat of prosecution convinced many bank executives that they should keep their business simple and transparent, or worry about the consequences if they did not.

When the economy became Roy the O criminal police cleaned up much of this Oy-R fraud then. In the mainly Biv economy after the GFC the fraud has been mainly treated as a civil matter by I. 


In an important call to arms this past summer, Andrew Haldane, the Bank of England’s executive director for financial stability, laid out the case for an international regulatory overhaul. “For investors today, banks are the blackest of boxes,” he said. But regulators are their facilitators. Haldane noted that a landmark regulatory agreement from 1988 called Basel I amounted to a mere 18 pages in the U.S. and 13 pages in the U.K. Likewise, disclosure rules were governed by a statute that was essentially one sentence long.
Basel II, the second iteration of global banking regulation, issued in 2004, was 347 pages long. Documentation for the new Basel III, Haldane noted, totals 616 pages. And federal regulations governing disclosure are even longer than that. In the 1930s, a bank’s reports to the Federal Reserve might have contained just 80 entries. Yet by 2011, Haldane said, quarterly reporting to the Fed required a spreadsheet with 2,271 columns.

Iv-B economies are much more complex, this compelxity can also be used to confuse and hide deception as well as wear out V-Bi opponents. 
The banks provide “a ton of disclosure,” Ackman notes. There are a lot of pages and details in any bank’s annual report, including Wells Fargo’s. But “it’s what you can’t figure out that’s terrifying.” In the gargantuan derivatives-trading positions, for instance, he says, “you can’t figure out whether the bank has got it right or not. That’s faith.”
A combination of clearer, simpler disclosure and stronger enforcement would help clean up the system, just as it did beginning in the 1930s. Not only would shareholders better understand banks’ businesses, but managers would have the incentive to run their businesses more ethically. The broad cultural failure on Wall Street has arisen in part because disclosure rules encourage the banks to be purposefully opaque. Today, their lawyers don’t judge whether statements are clear and meaningful but rather whether they are on the bleeding edge of legality. If bank managers faced real consequences when their descriptions proved inaccurate or incomplete, they would strive to make those descriptions as clear and simple as Strunk and White’s The Elements of Style.
Perhaps there is a silver lining in the loss of sophisticated investors’ trust. The disillusionment of the elites, on top of popular outrage, could foment change. Without such a mobilization, all of us will remain in the dark, neither understanding nor trusting the banks. And the rot will spread.

HSBC to Pay $1.92 Billion to Settle Charges of Money Laundering - NYTimes.com

HSBC to Pay $1.92 Billion to Settle Charges of Money Laundering - NYTimes.com

HSBC to Pay $1.92 Billion to Settle Charges of Money Laundering

4:37 a.m. | Updated
State and federal authorities decided against indicting HSBC in a money-laundering case over concerns that criminal charges could jeopardize one of the world’s largest banks and ultimately destabilize the global financial system.

An Iv-b economy based on deception and secrecy can collapse easily, it is like weeds which grow large at the cost of an ability to withstand shocks like storms. However unless the I-o police are strengthened these weed like businesses will drive out more honest and stable companies in a Gresham's dynamic.
Instead, HSBC announced on Tuesday that it had agreed to a record $1.92 billion settlement with authorities. The bank, which is based in Britain, faces accusations that it transferred billions of dollars for nations like Iran and enabled Mexican drug cartels to move money illegally through its American subsidiaries.
While the settlement with HSBC is a major victory for the government, the case raises questions about whether certain financial institutions, having grown so large and interconnected, are too big to indict. Four years after the failure of Lehman Brothers nearly toppled the financial system, regulators are still wary that a single institution could undermine the recovery of the industry and the economy.
But the threat of criminal prosecution acts as a powerful deterrent. If authorities signal such actions are remote for big banks, the threat could lose its sting.

When business opportunities are rare an economy can become Roy, then O criminal penalties are needed as I fines are not as effective.
Behind the scenes, authorities debated for months the advantages and perils of a criminal indictment against HSBC.
Some prosecutors at the Justice Department’s criminal division and the Manhattan district attorney’s office wanted the bank to plead guilty to violations of the federal Bank Secrecy Act, according to the officials with direct knowledge of the matter, who spoke on the condition of anonymity. The law requires financial institutions to report any cash transaction of $10,000 or more and to bring any dubious activity to the attention of regulators.

Given the extent of the evidence against HSBC, some prosecutors saw the charge as a healthy compromise between a settlement and a harsher money-laundering indictment. While the charge would most likely tarnish the bank’s reputation, some officials argued that it would not set off a series of devastating consequences.
A money-laundering indictment, or a guilty plea over such charges, would essentially be a death sentence for the bank. Such actions could cut off the bank from certain investors like pension funds and ultimately cost it its charter to operate in the United States, officials said.

Why Do Chinese Billionaires Keep Ending Up in Prison? - Rebecca Chao - The Atlantic

Why Do Chinese Billionaires Keep Ending Up in Prison? - Rebecca Chao - The Atlantic

In most places, being ranked by a prominent magazine among the wealthiest people in the country constitutes a great honor. Not in China. Such lists, known as bai fu bang in China and published inForbes and its Chinese equivalent Hurun, are described instead as the sha zhu bang: "kill pigs list."
In the last fifteen years, China has produced greater overall wealth than any other country. The number of its billionaires has gone from a mere 15 to around 250 in just six years, but for a number of these people this vaulted status is short-lived. According to one study, 17 percent of those on the list end up squealing their way to court or end up in jail. If they're lucky, those who are caught are investigated and jailed. Some are even executed.

In a Roy economy the wealthy can be Y at first like a mafia or dictatorship, they can be jailed if the O criminal police are strong and find Oy agents of the Y businessmen to snitch on them.
British businessman Rupert Hoogewerf first introduced the China Rich List in 1999 as part of theHurun Report, a magazine published about wealth and the wealthy in China. Hoogewerf defends his list from accusations that he unwittingly targets China's privileged, arguing that only one percent have run afoul with the law. The latest Hurun Rich List, however, belies this claim: it lists a handful of those have been arrested, charged or jailed.
Many of those who are not in hot water with the law are, however, facing a different quandary: they're getting poorer. Just under half of the 1,000 richest have seen their wealth shrink, with 37 of them enduring losses of over 50 percent. Overall, there were 20 fewer billionaires in 2012 than in the year before.
John Bussey of the Wall Street Journal also noted the curse of the rich list: "Very soon after [China's wealthiest] make the list and get publicity, their share prices begin to decline. The companies themselves are more subject to government cutting off subsidies to them, and the individuals who lead them are more subject to investigation."

This is a rebalancing of the Roy food chain as they attract more O attention.
Take Zhou Zengyi as an example. Once China's 11th richest man, valued by Forbes at $320 million in 2002, he has since been arrested twice and is currently serving a 16-year sentence. Zhou's transgressions even took Chen Liangyu, Shanghai's Communist party secretary, down with him.
What accounts for the sharp rise and fall of China's wealthiest? In a business environment in which personal connections and favors -- referred to as guanxi in Chinese -- predominate, many tycoons have amassed large fortunes without concern of rules and regulations. However, such a fast and loose atmosphere can cut both ways.

Y people being apex predators usually ignore the rules of those under them, they use Oy agents to do the criminal work and T gets the lion's share. This is like y lions taking the carcass off Oy hyenas, the hyenas in effect act as agents for the lions and in return would get some leniency in being on the lion's territory. To break this system the O police use Oy snitches, O is like the center of the food chain where between them and the Oy predators the power of the Y apex predators is reduced.

As Deadlines Loom for Financial Crisis Cases, Prosecutors Weigh Their Options | The Untouchables | FRONTLINE | PBS

As Deadlines Loom for Financial Crisis Cases, Prosecutors Weigh Their Options | The Untouchables | FRONTLINE | PBS

As Deadlines Loom for Financial Crisis Cases, Prosecutors Weigh Their Options

For more than four years, authorities have struggled to successfully prosecute a Wall Street bank or its executives for alleged misconduct during the financial crisis. Now, time may be running out.

V companies can use time to waste the energy of I-O police until it reaches a limit and collapses, here a statute of limitations. 
Under federal securities law, the statute of limitations in fraud cases normally lasts five years. Given that the bulk of the mortgage-related securities that precipitated the crisis were created in 2006 and 2007, the window of opportunity for authorities to bring new charges is rapidly closing.
“So much sand has fallen out of the hour glass, now there’s not much left,” said James Cox, a professor of corporate and securities law at Duke University. “I think the government has had plenty of chances to bring high-profile cases and haven’t.”
As of Jan. 9, the Securities and Exchange Commission had charged 153 entities or individuals in crisis-related cases, and won $2.68 billion in penalties. The largest penalty was a $550 million agreement with Goldman Sachs to settle claims it misled investors over a mortgage-related security called Abacus 2007-AC1. In its complaint, the SEC charged that Goldman never revealed that the hedge fund manager who created Abacus, John Paulson, was betting against the same mortgage bonds that made up the security. Though Goldman did not admit to the SEC’s allegations, it acknowledged that marketing material for Abacus “contained incomplete information.” 
But government watchdogs are quick to remind that enforcement has focused mainly on civil penalties, rather than criminal charges against executives from any Wall Street firm. The government’s first criminal case, a nine-count indictment against two former Bear Stearns executives for securities, mail and wire fraud, ended in November 2009 with a not guilty verdict on all counts.

A Biv economy usually controls fraud with I civil penalties, this is because people tend to make more money from abundant resources without resorting to O criminal behavior. In a boom however the final stages can include Roy scarcity of resources, governments can nationalize parts of the banking system as G while Biv people might engage in Roy criminal activity from this scarcity to minimize losses in a negative sum game.

Libor Lies Revealed in Rigging of $300 Trillion Benchmark - Bloomberg

Libor Lies Revealed in Rigging of $300 Trillion Benchmark - Bloomberg

Danziger typically would have swiveled in his chair, tapped White on the shoulder and relayed the request to him, people who worked on the trading floor say. Instead, as White was away that day, Danziger input the rate himself. There were no rules at RBS and other banks prohibiting derivatives traders, who stood to benefit from where Libor was set, from submitting the rate -- a flaw exploited by some traders to boost their bonuses.
The next morning, RBS said it would have to pay 0.97 percent to borrow in yen for three months, up from 0.94 percent the previous day. The Edinburgh-based bank was the only one of 16 surveyed to raise its submission that day, inflating that day’s rate by one-fifth of a basis point, or 0.002 percent. On a $50 billion portfolio of interest-rate swaps, RBS could have gained as much as $250,000.
Events like those that took place on RBS’s trading floor, across the road from Bishopsgate police station and Dirty Dicks, a 267-year-old pub, are at the heart of what is emerging as the biggest and longest-running scandal in banking history. Even in an era of financial deception -- of firms peddling bad mortgages, hedge-fund managers trading on inside information and banks laundering money for drug cartels and terrorists -- the manipulation of Libor stands out for its breadth and audacity.
Details are only now revealing just how far-reaching the scam was.
“Pretty much anything you could do to increase the revenue of your organization appeared legitimate,” says Martin Taylor, chief executive officer of London-based Barclays Plc from 1994 to 1998. “Here was the market doing something blatantly dishonest. I never imagined that people in the financial markets were saints, but you expect some moral standards.”

V companies can use Iv agents to be deceptive on their behalf, in exchange the agents make more commissions. With weak I-O policing this fleecing of the B public will grow until it hits a ceiling and collapses. A Gresham's dynamic forces out honest agents as they make less money for the company, if the I-O police are biased to Iv they have little desire to recruit whistle blowers.

Dell’s largest outside shareholder thinks it’s worth $10 more a share - Quartz

Dell’s largest outside shareholder thinks it’s worth $10 more a share - Quartz

In the wake of Caterpillar’s $580 million write-down of the value of a Chinese acquisition where it claimed to have discovered major accounting irregularities, Beijing-based accounting expert Paul Gillis has helpfully detailed several methods crooked Chinese companies commonly use to cook the books.
The tricks Gillis mentioned include faking sales and then fabricating cash that should have flowed in from those sales by, for example, pretending money is temporarily being held by subcontractors the company has hired to carry out some business on its behalf.

With high growth in exports the Roy economy can lead to a highly criminal phase, if it becomes more wealthy then this will become more Biv civil business infractions. Many of these frauds occur because resources are still scarce in China, as G public property is privatized as in Russia there can be Roy people profiting from this. When the economy becomes more Biv wealthy companies will take fewer chances like this because there is more profit in a positive sum game where everyone benefits even if these companies still take the Y lion's share of profits.

What unites the alleged fraud at Caterpillar’s Chinese subsidiary, Siwei, with the methods described by Gillis are their simplicity. While Enron hid its losses by conducting derivatives transactions with its own off-balance sheet vehicles and Bernard Madoff went to extreme lengths to conceal his Ponzi scheme with a purported “split-strike” trading strategy, corrupt Chinese companies often inflate sales by fabricating deals and inventing false customers.
According to Caterpillar,  Siwei turned out not to have much of the equipment it had listed on its books.
In his interview with China Money Podcast, Gillis wondered aloud why Caterpillar’s auditors did not notice Siwei’s missing equipment before the acquisition. “Did the accounting firms miss what was right in their face?” he mused.
Rod Sutton, an insolvency expert and the Asia Pacific chairman of professional services firm FTI Consulting, says he is often baffled by how auditors miss what turn out to be uncomplicated financial irregularities at Chinese companies.  ”Often, what we deal with are basic cases of inflating revenues that really do not have an Enron level of complexity.”