Inside the Secret Society of Wall Street’s Top In-House Lawyers


… lawyers are another bunch of rogues second only to their buddy banksters. Secret meetings in the same fashion as their master Bilderbergers reflect the shady business of the cabal


 

Bloomberg

It’s a Wall Street club that’s virtually unknown on Wall Street. It has no name or official membership list, and it meets only once a year, in locations such as Switzerland’s Lake Lucerne, Connecticut’s Litchfield County, and, this year, Versailles.

The attendees are top in-house lawyers for some of the world’s most powerful banks — people who sit at the table for decisions that can shape multibillion-dollar litigation tabs for the likes of Barclays Plc, Citigroup Inc., Goldman Sachs Group Inc., Deutsche Bank AG and JPMorgan Chase & Co.

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Trianon Palace Vesailles

For this year’s meeting, in late May, the lawyers descended on Trianon Palace Versailles, a luxury hotel less than two kilometers from the palace of Louis XIV and adjacent to the royal park.

The gatherings, which were described by several people familiar with them who asked not to be identified, tend to feature discussions of nuts-and-bolts issues such as managing relationships with the board and whether compliance personnel should receive stock incentives.

Sticking Together

This year, according to two of the people, some attendees arrived at the marble and gilded hotel primed to focus on a common scourge: class-action lawyers who seek billions of dollars from top banks for alleged market manipulations and related bad behavior. Eric Grossman, chief legal officer at Morgan Stanley, implored his confederates to hang together and resist the temptation to settle quickly.

Months before, Citigroup Inc.’s general counsel, Rohan Weerasinghe, had made a decision that essentially forced several of the world’s biggest banks to pay a total of $1.9 billion to settle a class action over credit-default swaps. Investors, including the Los Angeles County Employees Retirement Association, claimed the banks had worked together to limit competition in the market, allowing them to earn extra profits.

When multiple banks are sued in a class action, it’s common for them to share information and coordinate their defenses. But after years of practice, class-action lawyers have figured out a way to fracture these alliances. They reach a settlement with one bank, then ratchet up pressure on the others. Each bank knows that the last to settle will probably pay the heftiest price. That’s because of a legal theory called joint and several liability, in which a company found in court to be even partially to blame can end up on the hook for all the damages.

In the swaps case, Citigroup broke first, agreeing in the summer of 2015 to pay $60 million. Others followed, with JPMorgan Chase & Co. settling last for $595 million. Looming over the banks was the possibility of an antitrust investigation of the swaps market by the European Union, which could have uncovered evidence that would then be available to the class-action plaintiffs. In the end, the EU closed its case, so the banks might have been better off waiting.

Avoiding Criticism

Citigroup’s decision to settle highlighted the need for a conversation on the matter, according to the people familiar with the May meeting. Weerasinghe was there, but in keeping with the group’s collegial atmosphere, there was no direct criticism of him for deciding to cut a deal, the people familiar with the event say.

“They realize they are stronger when they stick together than when they splinter,” says Dan Brockett of Quinn Emanuel Urquhart & Sullivan, a lead plaintiffs’ attorney in the swaps case. “But each general counsel has a fiduciary duty. Each bank will act in its own interest.”

The annual gathering, whose existence hasn’t previously been reported, is the brainchild of lawyer Robert Mundheim. A general counsel for the U.S. Department of the Treasury in the 1970s, Mundheim went on to become a dean at the University of Pennsylvania Law School, then general counsel for the former Salomon Smith Barney in the 1990s. He’s now with the firm Shearman & Sterling and has been hired by independent directors of Wells Fargo to investigate the bank’s retail sales practices and other matters.

The Decider

Mundheim decides which top bank attorneys should be tapped for membership, according to the people with knowledge of the meetings, one of whom said they have been held for roughly two decades. The group includes banks that have in recent years grappled with investigations by the U.S. Department of Justice, the Federal Reserve and other regulators, as well as class actions. Besides the swaps case, major banks have paid settlements related to alleged manipulation of foreign exchange rates and the ISDAfix benchmark, which is used in the sale of interest rate derivatives.

After inquiries by Bloomberg News, some members of the group complained to one another about a breach of confidentiality, according to the people. Mundheim declined to comment, as did Grossman and Weerasinghe.

The Trianon, nestled near the gardens of Versailles, features a Gordon Ramsay restaurant as well as a spa and indoor pool.

Also representing the U.S. banks at the Versailles gathering were current or departing general counsels including Stephen Cutler of JPMorgan, Gary Lynch of Bank of America and Gregory Palm of Goldman Sachs, according to the people familiar with this year’s meeting.

Across the Pond

Joining them were counterparts representing banks on the other side of the Atlantic, including Markus Diethelm of UBS Group AG, Richard Walker of Deutsche Bank, Robert Hoyt of Barclays, Romeo Cerutti of Credit Suisse Group AG, David Fein of Standard Chartered Plc, Stuart Levey of HSBC Holdings Plc and Georges Dirani of BNP Paribas SA, according to the people.

Through bank spokesmen, the general counsels and banks declined to comment.

Among the proposals put forward during this year’s meeting was a suggestion that all banks in a suit wait at least 60 days after the filing of a routine motion to dismiss the case before going their own way. Another was that any general counsel who wanted to enter into settlement talks consider giving his counterparts 48 hours’ notice so they wouldn’t be left scrambling.

The overnight gathering ended with a traditional group stroll outside. Then the lawyers went their separate ways, saying goodbye until next year’s meeting.

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Reek of Desperation Surrounds EU Banks, Regulators Prepare for “Derivatives Clearing Crisis”


…the controlled demolition of the system continues….


WolfStreet

It’s now clearer than ever that the ECB, the IMF, the BIS and all the other supranational alphabet soup creations will do “whatever it takes” in the coming months to keep Deutsche Bank and its brethren whole. But will it be enough? After all, the problems are not remotely contained to just Germany.

Zombification of EU banking system gathers momentum.

The past week’s events in Europe were dominated by the pound sterling’s spectacular flash crash to its lowest point in 31 years. As is often the case with flash crashes, we will probably never know what exactly triggered the currency to free-fall by 6% during Asian trading hours, though the most cited cause, apart from a “fat finger,” is the gathering realization that a so-called “hard” Brexit is a very real possibility.

But it’s an eventuality that can be expected to play out in roughly two and a half years’ time, at the earliest, and in light of the powerful forces arrayed against it, it may never occur at all.

In the meantime, something far more dangerous is happening on the other side of the English Channel: the slow-motion meltdown of the Eurozone’s banking system.

In its Global Financial Stability Report, the IMF warned that banks in Europe were too weak to generate sustainable profits even if — and here’s the kicker — the region saw strong economic growth. That hasn’t happened for years.

The IMF also cautioned that the banks’ weak profitability, caused by subdued growth in the Eurozone and ultra low or negative interest rates — something the ECB vehemently denies, preferring to blame the crisis on Europe’s smaller regional or local banks — could further erode their financial buffers and undermine their ability to support economic recovery.

“In Europe, about one third of the system – representing some $7.5 trillion euros in assets – remains weak and unable to generate sustainable profits,” said IMF economist Peter Dattels as he presented the report in Washington. As such, European banks need “urgent and comprehensive action” to address a legacy of non-performing loans and bloated, inefficient business models, he said.

“Urgent” and “comprehensive” are two words you’d rarely associate with the Eurozone, especially at a time when the region faces a relentless gauntlet of political threats, from the rise of “populist” movements in central and northern Europe to December’s do-or-die constitutional referendum in Italy. That’s not to mention what promises to be tightly fought national elections in the Eurozone’s two biggest economies, France and Germany, scheduled to be held respectively in April and October, 2017.

The last thing either Merkel or Hollande needs during election season is a region-wide banking crisis, which is why every effort will be made to keep a lid on the problem until the votes have been cast. But that is not going to be easy, not with Germany’s flagship lender, Deutsche Bank, continuing to sink at an alarming rate.

Things have got so desperate for the Frankfurt-based bank that it may soon be in need of corporate charity. According to a rumor unleashed on Thursday by the German daily Handelsblatt, the chief executives of several German blue-chip companies have discussed Deutsche’s problems and are — if needed — ready to offer a capital injection to shore up the bank.

If that doesn’t steady investor nerves, there’s always Plan Z: create new rules that would allow the ECB to effectively contravene recently introduced rules that forbid it and other EU institutions and nations from directly bailing out financial institutions without first bailing-in some of their creditors. According to Bloomberg, Plan Z is already under way. But instead of being used to bail out the region’s banks, the new legislation will be used to bail out clearing houses, Europe’s new too-big-to-fail monstrosities:

Draft EU legislation seen by Bloomberg sets out rules on saving or shuttering clearinghouses that would apply to firms such as London-based LCH. The proposals cover everything from the creation of resolution authorities to the powers they would have when winding a company down, including writing down shares, debt and collateral.

The ultimate aim is to dampen investor concerns about the threat posed by the global derivatives time bomb, much of which is tick-tocking on and off the balance sheets not only of Wall Street’s finest, but also of Deutsche Bank. Here’s more from Bloomberg:

The authorities would be able to recapitalize the clearinghouse by seizing variation margin, exercising cash calls defined in recovery or resolution plans and writing down capital and converting debt securities. They would also be able to auction off the defaulters’ positions, tear up some or all contracts and access default funds. The relevant central bank would be able to facilitate resolution by supplying temporary liquidity.

And here’s the real kicker (emphasis added):

“Should these options be unavailable or be demonstrably insufficient to safeguard financial stability, government participation in the shape of equity support or temporary public ownership could be considered as a last resort,” according to the proposal. Those steps would need to comply with EU rules on state aid.

As recent months have shown, EU rules on state aid are extremely elastic, especially when it comes to saving the hide of the continent’s biggest banks and corporations. In August, it was leaked that the ECB has bought bonds from the issuing corporations via “private placements,” thus putting freshly printed cash directly on corporate balance sheets at no cost to the corporation. Yet there’s not been a single whiff of protest from Europe’s competition commissioner.

It’s now clearer than ever that the ECB, the IMF, the BIS and all the other supranational alphabet soup creations will do “whatever it takes” in the coming months to keep Deutsche Bank and its brethren whole. But will it be enough? After all, the problems are not remotely contained to just Germany.

In Italy, JP Morgan Chase’s master plan to save Monte dei Paschi continues to flounder as investors show zero appetite for more MPS capital. In fact, expectations are so low that rumors have already began surfacing that an alternative plan, under the aegis of Italy’s former Industry Minister and senior banker Corrado Passera, is now in the works.

It all reeks of desperation.

So, too, does the semi-clandestine bailout of Spain’s state-owned Banco Mare Nostrum. With the markets showing zero interest in taking the bailed-out entity off the public’s hands, the government is trying to usher it into a forced marriage with largely state-owned Bankia. The message, once again, is resoundingly clear: the only way the bank can be maintained as a going concern is through continued and growing public support.

The zombification of Europe’s banking system — the legacy of years of doing “whatever it takes” to save giant insolvent banks — continues to gather momentum. Things are now so serious that some of the world’s most senior policy makers are not only beginning to warn of a new financial crisis, they’re beginning to turn on each other in public. They include Germany’s dour Finance Minister Wolfgang Schaeuble who, much like the IMF, lays most of the blame for Europe’s current problems on the “ultra-loose monetary policy” pursued by the ECB.

But as always with Schaeuble and Merkel, their complaints are meant for public consumption. When crunch time arrives for Deutsche Bank, and the only institution that can save it is the ECB (perhaps with a little help from the Fed, as on countless occasions before), such criticism will very quickly die down. By Don Quijones, Raging Bull-Shit.

Italy’s Monte dei Paschi’s cleverly concealed debt bomb has had explosive consequences, now associated with a gargantuan crime scene. Read…  Rescue of Monte dei Paschi Gets ‘Dark’ & ‘Complicated’

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Germany’s deputy chancellor attacks Deutsche Bank chief


FT

Sigmar Gabriel rounds on John Cryan for blaming ‘speculators’ in memo to staff

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Sigmar Gabriel (right) indicsted that Deutsche Bank and its chief executive, John Cryan (left) would receive little sympathy from Berlin

© FT montage; Reuters; Bloomberg

Germany’s deputy chancellor has launched a blistering attack on John Cryan, Deutsche Bank chief executive, as concerns continue to rise among the country’s political and corporate elite over the market storm threatening to engulf the country’s biggest lender.

Sigmar Gabriel, leader of the centre-left social democrats and Germany’s economics minister, took aim at a memo Mr Cryan sent to Deutsche staff last week after its shares plunged to 30-year lows. In it, he blamed “forces in the market” that were trying to destabilise the bank.

“I didn’t know whether I should laugh or be furious that a bank which turned speculation into a business model now declares itself the victim of speculators,” Mr Gabriel said. “I’m really worried about the people employed at Deutsche Bank.”

Read further

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Western Banks Crumble while Yuan Joins the IMF SDR Basket


“Surely, the complete Western financial collapse will just be a matter of time, and contrary to some assertions, it’s not something that the Khazarian bankers are fretting much about. They have already invested their loot in China, India and even in Russia. They have profited from every systemic shift which have happened before.”

Covert Geopolitics

The gradual Global Reset continues with the official inclusion of the Chinese Yuan (RMB) as prime alternative to the US dollar as global currency of exchange which should provide a smooth transition away from fiat dollar.

View original post 2,473 more words

EU Banking Mayhem: One Bank at a Time – Then All at Once


 

by Wolf Richter

Investors are not amused.

The European banking crisis simply doesn’t let up. Currently, the big two German banks are grabbing the headlines away from the Italian banks, due to their size and the damage they could do to the global financial system. Other banks are in bigger trouble still, and some have already collapsed, with bailouts and bail-ins getting lined up.

Deutsche Bank had to endure a horrendous Monday after it was leaked on Friday that Merkel had refused to entertain bailing out the bank before the general elections a year from now. Merkel’s popularity has gotten broadsided recently, and bailing out bank bondholders with taxpayer money is just not popular at the moment.

Then Commerzbank, in which the government already owns a stake of 16% as a result of the bailout during the Financial Crisis, graced the headlines with leaks that it would lay off 9,000 employees, nearly one-fifth of its workforce. This will cost about €1 billion, according to the sources. To pay for it, the bank will scrap its dividend for 2016 to reduce the bleeding and preserve capital, in what is turning out to be the hellish environment of negative interest rates.

We’ve been writing about the European banking crisis for a long time, it seems, as it drags on, and meanders from one country to another, and sometimes we write about it in an amused fashion because we’ve got to keep our sense of humor in all this gloom.

But investors who believed in all the hype and in Draghi’s promises and in Merkel’s strength and in the willingness of all of them to do whatever it takes to protect bank bondholders and stockholders, and who believed in the miracle of Spain’s recovery, and in Italy’s new government and what not – well, they’re not amused.

For them, it has been bloody. The global financial crisis got swept under the rug. Then the euro debt crisis took down some banks at the periphery, and taxpayers stepped in to bail out the bondholders, mostly, and a lot more things got swept under the rug. But the problems weren’t solved. And as the decomposing assets under the rug kept exuding their pungent odor, investors held their nose and played along for a while.

But now it’s just getting worse. And investors are wondering what exactly is under these rugs – or maybe they’d rather not know for it’s too ugly to behold. And every time someone does look, for example at the Italian banks, they find even bigger problems that have started to metastasize.

This banking crisis has the potential to transmogrify into a financial crisis. All it takes is for one of the big ones to suddenly topple. The flow of credit would freeze up instantly. In an economic system that depends on credit, and whose lifeblood is credit, such an event is a financial crisis.

The problem isn’t restricted to a couple of Italian or German banks. It’s deep and wide.

Here are the 29 banks in the ESTX Banks Index of Eurozone banks (so Swiss and UK banks, for example are not included). It shows the percentage drop from their 52-week high. But for some of these banks, particularly for Italian and Portuguese banks, that 52-week high was just about last year’s 52-week low, so relentless has their decline been over the years. Some of them had already been reduced to penny stocks years ago, and for them, in euro terms, the biggest losses occurred back then. So these mayhem banks, color coded by country:

eurozone-bank-estx_from-52-week-high

If a bank stock plunges from €0.04 to €0.01 over the 52-week period, such as Banco Comercial Português in Portugal, it has been toast for longer than 52 weeks, and the percentage plunge is essentially meaningless because shares were worthless to begin with.

The shares of five of these banks trade under €1. Another 8 banks trade under €3. These 29 banks form a big part of the European financial system. It includes some of the world’s largest banks, such as Deutsche Bank, Societe Generale, and BNP Paribas. It includes a slew of other “systemically important financial institutions,” such as Unicredit, ING, and Santander.

They’re troubled at the same time. The can has been kicked down the road for years. Now negative interest rates appear to have inadvertently crushed the can.

So when will Merkel buckle? Read…  Deutsche Bank in Free Fall. Shares, CoCo Bonds Plunge. Merkel Gives Cold Shoulder on Bailout. Bank Denies Everything

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Say What You Like About The Fed Or The Central Banks, The Bank$terS Are Above Governments


FT

Fed on ropes as Yellen seeks to fend off Trump blows

Populist attacks from all sides make central bank vulnerable to calls to rein it in, say analysts

After a fusillade of excoriating and in many ways unprecedented attacks on the Federal Reserve by the Republican presidential candidate, Janet Yellen, the US central bank’s chair, finally hit back.

Ms Yellen last Wednesday dismissed as emphatically wrong Donald Trump’s claims that she and her institution were keeping short-term interest rates low at the behest of the Obama administration. “Partisan politics play no role in our decisions,” she declared.

Mr Trump is throwing punches at a time when the US central bank is under assault from both sides of the partisan divide, and at a time when polling suggests public confidence in its leadership has declined during a subpar economic recovery.

Some experts say the Fed is vulnerable and that the populist attacks could fuel demands by politicians for tighter constraints on its policy freedoms. Mr Trump “is tossing a lot of fuel on the fire”, says Sarah Binder, a professor of political science at George Washington University. “It intensifies the partisan criticism of the Fed and keeps the Fed in the politicians’ crosshairs.”

Mr Trump’s interventions by no means mark the first time the Fed has been turned into a political punching bag. Previous Fed chairs have been the subject of barbs during presidential campaigns — including in 2011 when Republican candidate Rick Perry accused former Fed chair Ben Bernanke of “treasonous” behaviour by conducting quantitative easing. Past administrations have seen outbreaks of tension with Fed chiefs, including under presidents George HW Bush and Richard Nixon.

Ms Yellen herself has become accustomed to fielding hostile questions from lawmakers during often fractious Capitol Hill appearances.

Mr Trump has, however, set a new standard for anti-Fed invective — at least when it comes to presidential nominees. He has said in recent weeks that Ms Yellen should be “ashamed” of what she is doing to the country, accusing her of creating a false stock market with low rates and setting policy to bolster President Barack Obama’s fortunes…

Read further


Central banks: Peak independence

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After a post-crisis surge in central bankers’ power, some politicians want to rein in their role


Yellen To Trump: The Fed Is Above The President

CorbettReport.com


Trump goes after Fed Reserve’s Yellen, claims she’s ‘more political’ than Clinton – Fox

“We are in a very big, ugly bubble,” Trump said Monday. “The Fed is not doing its job. The Fed is being is more political than Hillary Clinton.”


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Elizabeth Warren – a devoted tool for the civic religion that is statism


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Elizabeth Warren’s Selective Outrage

Joey Clark

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I made the mistake of checking my newsfeed only to witness that paragon of Potemkin progress, Elizabeth Warren, indignantly shaming the CEO of Wells Fargo over the bank’s recent cross-selling scandal.

Say what you will about the senior Senator from Massachusetts, love her or hate her, but waking up to an Elizabeth Warren harangue is about as pleasant as a throbbing hangover without the consolation of a previous night’s revelry.

Despite having the moral high ground (Wells Fargo did, indeed, defraud their customers), Senator Warren’s presentation came across as effective yet priggish. This is the Elizabeth Warren many progressives have come to know and love. When one progressive writer recently described Warren (and I believe with loving intentions) as a “moral drill bit,” he wasn’t far off from describing her as a useful tool.

A Veritable Swiss Army Knife

I happily welcome this metaphor. Warren is, indeed, a tool – a passionate tool for the populist left, an unwitting tool for government cronyism, a conscious tool of Hillary Clinton, and a devoted tool for the civic religion that is statism.

Though Warren may “speak truth to power” to Wall Street, she often turns mute on some of the worst abuses of government. Like most statists, she sees the speck in her brother’s private eye while failing to see the beam in her own public eye. A whole manner of sins, it seems, are forgiven once one is “serving the public” in government.

Yet, the crucial distinction between government and business is not private vs. public. After all, business often serves the public while government often serves private interests. The crucial difference between government and the so-called private sector is impunity – the ability to assault, kill, and defraud without consequence. The more government and business become intermingled, the more the law becomes a tool of privilege for private and public players alike rather than a defensive measure for the equal liberty and dignity of all.

Elizabeth Warren and those of her ilk seem to think the remedy to crony capitalism is to further empower the very source of such abuses in the first place – state power. When they express righteous indignation in the face Wall Street executives’ impunity but turn a blind eye to the state’s own, it is nothing more than hypocrisy.


Given their incessant prattling and absurd demands, we might as well start calling the whole damn Congress the “Knights Who Say Ni!”


Impunity is impunity is impunity, yet sadly there are plenty of hypocrites on Capitol Hill who damn private actors for actions that are par for the course, or even encouraged, in the public arena. However, among this recent bunch of public servants, Elizabeth Warren takes the cake. Her presentations are not only hypocritical and sanctimonious but boldly so.

As warranted as Senator Warren’s dressing down of Wells Fargo’s CEO was, let us consider this “moral drill bit” in terms of both her style and substance.

Warren’s “Progressive” Political Stylings

Warren always seems one monosyllabic utterance away from sounding exactly like a Michael Palin character in a famous Monty Python film. Almost without fail, after asking the Wells Fargo CEO each of her questions, Warren allowed little to no time for answers. No, her committee time would be used for a hectoring lecture come hell or high water. The folks back home expect nothing less, and to be fair, such an approach is not unique to Elizabeth Warren.

Leading questions and political grandstanding are a mainstay at congressional hearings no matter the party affiliation of the inquisitor. Given their incessant prattling and absurd demands, we might as well start calling the whole damn Congress the “Knights Who Say Ni!” If only we could get them to shut-up by simply saying “it.”

That said, Elizabeth Warren has largely proven herself first among equals when it comes to displays of high dudgeon. She needles the Wall Street elite like no one else, and her star has risen accordingly among progressive populists. The more she pooh-poohs the rising stock prices of corrupt bankers, the higher her own political stock rises.

One may say Elizabeth Warren is the left’s version of Donald Trump more than Bernie Sanders ever was. She is notoriously gifted at marshaling invective, outrage, suspicion, and resentment against not only corrupt bankers but a whole class of people – entrepreneurs – who, according to Warren, somehow become rich and successful en masse by not cooperating with others or serving the needs of society.

No, in Warren’s mind, the only way to “pay it forward” to society is to serve the state:

“There is nobody in this country who got rich on their own. Nobody. You built a factory out there – good for you. But I want to be clear. You moved your goods to market on roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory… Now look. You built a factory and it turned into something terrific or a great idea – God bless! Keep a hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.”
This consistent schtick has now earned Warren a spot in the progressive political big leagues. According to Benjamin Wallace-Wells in his piece for The New Yorker (the same piece that “lovingly” compared her to a tool,) Elizabeth Warren has been tapped as the “Democratic Party’s insult comic” for her effective belittling of Trump.

This consistent schtick has now earned Warren a spot in the progressive political big leagues. According to Benjamin Wallace-Wells in his piece for The New Yorker (the same piece that “lovingly” compared her to a tool,) Elizabeth Warren has been tapped as the “Democratic Party’s insult comic” for her effective belittling of Trump.

Yet, Warren must be careful of hypocrisy by her own progressive standards. By taking on Trump, she is coming to the aid of Hillary Clinton who is much too cozy with Wall Street for most progressives’ liking. In fact, as Warren was lambasting Wells Fargo’s CEO, she forgot to mention the ties of her chosen presidential candidate to the very same bank:

Wells Fargo, both the bank and its foundation, have given generously to the Clinton Foundation over the years. The bank has given between $10,001 and $25,000, and the foundation has given between $100,001 To $250,000. In 2011, former President Bill Clinton gave a speech to Wells Fargo for $200,000.

Of course, one may forgive Elizabeth Warren for doing the best she can to choose the lesser of two evils in the corrupt world of presidential politics, but even forgetting this shallow game of guilt by association with the Clintons, Warren’s hypocrisy still stands based on her own flawed political theory.

Impunity for Me and Not for Thee

So, why was Elizabeth Warren so upset at Wells Fargo anyway?

Bloomberg reports:

“The lender opened more than 2 million accounts that consumers may not have known about, the Consumer Financial Protection Bureau said in a statement Thursday. Wells Fargo, which fired 5,300 employees over the improper sales practices, agreed to pay a record $100 million fine to the CFPB, $35 million to the Office of the Comptroller of the Currency and $50 million to the Los Angeles city attorney to settle the matter. The San Francisco-based bank also will compensate customers who incurred fees or charges, the agencies said.”

So let me get this straight: a major bank took out accounts in people’s name without their consent and started charging them fees. Many Wells Fargo’s customers not only lost money in the short-term. Unwitting customers who had a line of credit taken out in their name without their consent could potentially have their credit ratings downgraded with long-run consequences. When these aggrieved customers tried to sue for damages, the bank claimed it was immune from punishment given certain contract stipulations.

I agree with Elizabeth Warren that this is deplorable behavior. I agree with her that this is an institutional problem rather than just a few thousand rogue employees. The incentives given by bank leadership clearly influenced bad behavior by the bank’s lower-level agents. I agree justice must be done.

Fraud and Force? Look at Government

Elementary justice would call for Wells Fargo to make the customers they defrauded whole, a refund plus damages. Yet, under the state’s theory of justice, not only must the bank pay back those who have been done wrong, they must also pay the state. Whereas the wronged customers of Wells Fargo will receive a few million dollar pittance in total, the state will receive hundreds of millions of dollars in fines. That sniffs of more than simple justice. That smells more like a protection racket.

Again, it is immoral and criminal when any one person or institution without explicit consent takes the life, liberty, or property of anyone else, and Wells Fargo appears to have committed fraud.

Yet, how can Elizabeth Warren and her ilk be so outraged by this bank’s actions, yet so sentimental about the government’s own modus operandi of force, fraud, and impunity? Why so sad in the face of Wells Fargo’s fraudulent contracts yet so enthusiastic for the social contract?

As deplorable as Wells Fargo’s behavior was in this situation, their actions pale in comparison to what the state does every day legally.

I Never Consented to the Social Contract

Just think of what the government does every day. The government looks at people living in its geographic monopoly (its customers) and presumes their consent, but I personally have never given my consent (and never would) for most of what the government does.

Though I have never consented to programs such as Social Security and Medicare (programs passed decades before my birth), the government persists in charging me fees for their administration. Though I have never consented to the War on Drugs, the government continues to take my money through threat of force only to then turn around and threaten me again with kidnapping and imprisonment for non-violent and often pleasurable behavior. When the government’s low-level agents, say the police, overstep the bounds of natural liberty in their enforcement of state rules I never consented to, the police may be sanctioned, but the politicians are never punished for giving the police the incentive to do so.

Furthermore, when the government does not take my property directly through taxation, it takes debts out in my name and sees fit to issue more currency by means of its monopoly on the production of money, harming the future credit prospects of a whole generation in the long-run while destroying the purchasing power of millions of Americans’ wages through inflation in the short-term. It then uses these debts to prosecute wars abroad in my name and grant special privileges to big business and other special interests.


Who judges the judges? Who guards the guards?


Again, I never consented to any of this, and when I try to sue the state or seek redress, the government claims to be immune from the basic dictates of justice and the ancient rules of liberty. Infuriatingly, the U.S. government claims this impunity for the sake of upholding liberty. They trample on our rights to uphold our rights. Go figure.

And this is supposed to be the institution serving as my champion against the likes of Wells Fargo? Where is Elizabeth Warren? What is her opinion on the bloody impunity of the state? Other than demonizing regulators on occasion for not doing “enough,” when has Elizabeth Warren ever struck at the root of the problem that is the state’s impunity?

Where is your indignation now, Senator?

Well, as Senator Warren told libertarian voters nearly four years ago:

“I’ve taught contract law for 25 years and contracts are about private ordering, about parties and voluntary exchanges who engage in transactions that make all of us better off. I love contracts and I think it’s a core part of the libertarian principles. It is an important part. Libertarians believe in social ordering, right? That the social ordering is by private arrangement, so, that they ought to believe in contracts and in fact I think they do.”

Yes, libertarians, or true liberals, believe in contracts based on voluntary consent. Libertarians are all for standards, rules, morality, and community; as long as they are freely chosen. This is not because of some arbitrary or peculiar penchant for personal liberty; rather, the libertarian contends voluntary standards are superior to imposed dictates because standards, rules, morality, and community are predicated on individual consent, e.g. a community that has not been freely chosen is no community at all, at least not a free one; if imposed through aggressive coercion, it is a society of institutional subjugation.

Yet, Elizabeth Warren, as noted above, is a true believer in the “social contract”—that by voting or simply living in a certain area, we have implied “our” consent to the state. Well, by that logic, I suppose Wells Fargo’s victims implied their consent by simply being customers with the bank in the first place.

However, unlike the state, Wells Fargo is subject to sanction from the government protection racket. There will be some semblance of justice served despite the state’s perverse understanding of justice. But, obviously, the government itself is not subject to its own scrutiny in the same way. Who judges the judges? Who guards the guards? How can we trust a monopoly to ever police its own monopoly powers in good faith?

Can One Consent to the Social Contract in the First Place?

If Warren is such a big believer in social ordering by private arrangement and voluntary consent, would she ever deem a contract signed under duress valid? Can one really consent to something, say the social contract, in the first place if one is never given the option to “just say no”?

As Gary Chartier writes in his book, The Conscience of an Anarchist:

“..if there is no real way of opting out, if the state doesn’t provide a way of allowing people not to consent to its authority while remaining within the territory it claims, then there’s really no way of opting in, either. The state treats us as having consented to its authority whatever we do, so we’re not really being given the choice to consent at all. And it’s hard to take seriously the idea that your consent means anything, that it should obligate you in any way, if you don’t have the option of not consenting.”

So, Elizabeth Warren, please continue to call out the massive frauds on Wall Street, but when you do, be sure you call out the state as well. After all, how can we trust an institution that doesn’t play by the same rules as the rest us to keep us honest in the first place?

I imagine this is a large part of why so many institutions, private and public, act criminally with impunity today. They have discovered a loophole in the system. If you wish to break the law, make the law a matter of one’s own authority rather than a matter of content as best gleaned by the dictates of a free and equal people’s reason and good faith.

If we are to have governance at all, it must be subject to same rules as those it governs. If I, or anyone else, defraud or murder someone, my consent is not needed to punish me. But, if I have done no one harm, what right does any person or government have to my life, liberty, or property? None whatsoever.

I am all for sniffing out unjust force, fraud, and impunity. However, I am under no illusion that impunity can ever be conquered by impunity. Only someone who loves the state could believe in such a fantasy.

Unfortunately, in the midst of this 2016 presidential election, I must admit this bloody delusion is going strong, and Elizabeth Warren is merely a bit player in a timeless struggle of liberty against power. Sometimes she gets it right, but overall, she accepts the basic lie of democratic state power that “we” are the government.

In time, I hope she learns to love liberty and be just as suspicious of the state as she is of Wall Street.


Joey Clark is a budding wordsmith and liberty lover. He blogs under the heading “The Libertarian Fool” at joeyclark.liberty.me. Follow him on Facebook.

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