January 28, 2023

As Easy Money Crashes, the Political and Legal Effects Appear

Because inflation ravages the economy, easy money is vanishing, with political and legal consequences to follow

In his recent article  targeting the failure of the FTX exchange , Ryan McMaken noted the fact that easy money regime we now have lived under for more compared to two decades has led to another bubble with a spectacular crash.

Enron and WorldCom blew up in the wake of the first bubble; Lehman Brothers and other investment banks and Wall Street firms took place in the 2008 collapse from the infamous housing bubble. The third iteration of the great bubble economy not only gives us a housing crash, but throws in  Silicon Valley and the troubles from the social media   leaders to boot.

Elon Musk’s $44 billion buy of Twitter, the company currently adept at losing money, is certainly turning out to be a  economic loss.   At the same time, back at the ranch, Tesla, the company that made Musk famous,   can also be in a financial tailspin . Amazon already is installing off employees and  Silicon Valley’s hiring boom has turned into a firing boom   as firms look for to pare down staffs to people who actually contribute something to operations.

Equities, which recently were the only game in town, given interest rate suppression, now  are officially within bear market territory , and many of us who got at least some money in equities are looking at losses, some significant. Moreover, because securities that pay interest still have not caught up with inflation, wherever we put our money, losses in real terms are almost a guarantee. White House claims of a excellent economy notwithstanding, the near future, otherwise grim, certainly is unclear.

The reverberations will not just be felt by businesses, but also by the political figures that received vast amounts of campaign cash from Silicon Valley companies and employees,   with Democrats being the big winner s,   raking in 98 percent associated with political tech money   and personal contributions through billionaire CEOs. In this year’s Georgia US Senate competition,   Democrat incumbent Raphael Warnock received substantially more money from California   donors (including Silicon Valley and Hollywood) than he received from members in his own state.

Indeed, the easy cash regime has been quite good not only for the tech and social media firms,   but also for the Democratic Celebration . Before the FTX exchange blew up, Sam Bankman-Fried, the supposed genius that created it,   gave Democrats nearly $40 million   for that 2022 elections, putting your pet second only to George Soros in money sent to Democrats. Because financially the next 2 yrs (at least) do not look good for the tech-internet-crypto sector, a single doubts that the Democratic Party is going to experience the financial windfall it received not only from California-based firms but through many other US corporations and Wall Street companies again any time soon.

These types of developments might have a significant effect on the 2024 elections, since Democratic candidates will not be because able to outspend and whelm their Republican opponents since has been the case ever since the Barack Obama years. But there is another factor which will be significant, and that is the possibility of lawbreaker charges being brought against people— like Bankman-Fried— in whose firms have collapsed spectacularly, evaporating billions of dollars in the process.

The George W. Bush Department associated with Justice (DOJ) won convictions against  WorldCom TOP DOG Bernard Ebbers   in 2005 and  Enron leaders Ken Lie down and Jeffrey Skilling   the next year. Like in so many other federal cases, the actual charges fell in to the murky categories of “ fraud” and “ conspiracy, ” which jurors tend to convict under because they believe that “ something happened, ” rather than there being clear, direct violations of federal lawbreaker law.

For instance , both Lay and Skilling sold some of their Enron share before the price collapsed, but they also purchased Enron share later. Prosecutors (and journalists) claimed that the two had been “ dumping ” their stock prior to a meltdown they knew was coming, but the details were much more complicated and didn’t follow the narrative. However , since the trial was held within Houston, where most people who seem to lost money in the Enron collapse lived, it was inevitable that the two would be convicted no matter what the evidence. It turned out that will prosecutors were hiding proof and suborning perjury which includes of their “ star” witnesses, but no matter. Enron lost a lot of money, and someone had to pay.

Skilling and Lay had given money to Republican candidates, but that didn’t purchase any legal protection from the particular Bush administration. It will be fascinating to see if Merrick Garland and his boss, Joe Biden, go after Bankman-Fried with the exact same vigor that the Bush DOJ pursued people whose businesses blew up.

If Garland looks to prosecute, he certainly has a case, based on fuzzy accounting that borders on outright fraud.   Writes   McMaken:

The “ genius” in this case is Sam Bankman-Fried (SBF), a thirty-year-old DURCH grad who ran FTX into the ground and had positioned control of his clients’ money in the hands of a few friends with virtually no genuine experience, knowledge, or scruples about how to responsibly take care of funds. Financial record maintaining and reporting at the organization were haphazard at best.

The calculations is going to be murky for a while, but it right now looks like FTX has “ lost”   at least $1 billion to $2 billion   associated with client funds, not to mention vast amounts of dollars in investments in the company that evaporated. A lot of it was probably just stolen. But it’s difficult to guess at this point because FTX  didn’t bother to put together a good accounting department .

Robby Soave  writes in  Reason :

John Ray III, who was brought in to manage Enron following that carrier’s self-destruction in 2001, is now the CEO of FTX. In a court filing last week, he said he has never ever seen such “ a complete failure of corporate control, ” including at Enron.

“ Through compromised systems integrity plus faulty regulatory oversight overseas, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated plus potentially compromised individuals, this situation is unprecedented, ” he said in a court filing.

Nevertheless , Soave also points out that mainstream media coverage of the FTX collapse has been scant at best. This is not due to a lack of interest in a major financial scandal  per se , but rather reflects the reluctance of the media to criticize someone who gave millions of dollars to mainstream and progressive news shops like Vox and ProPublica. Soave writes:

SBF is  still  benefitting from some kinder-than-expected coverage in the mainstream media, even in the particular wake of the revelations regarding his fraudulent activities— as well as from outlets that failed to receive his largesse. The   New York Moments ‘  statement on this disaster   uses soft, passive vocabulary to disguise blame at every turn. This is the outlet that will treats nearly every development within the tech sector as an  existential threat in order to democracy , yet its summation lets SBF compose his own verdict.   Expanded too fast? Failed to find warning signs?   This individual defrauded people out of huge amount of money! The empire didn’t collapse of its own accord; it collapsed because its fundamentals were fraudulent.

Meanwhile,   The Washington Post ‘s  reporting   on this subject has dedicated to SBF’s “ pandemic prevention” spending. “ Before FTX collapse, founder poured millions into pandemic prevention, ” writes the paper .   “ The majority of those initiatives have come to some sudden halt. ”

But will the Biden DOJ check out, or will it look another way? For that matter, while the FTX collapse is the most spectacular failure of our present age, the finish of easy money is going to produce a number of other bankruptcies. The difference is that many of the companies that go under is going to do so because they became extremely leveraged and were on a branch being sawed away from behind them when interest rates increased.

For now, Merrick Garland and his underlings are usually directing most of their energy at finding ways to prosecute Donald Trump and his supporters. But the financial fallout in the third major financial crisis of the twenty-first century may become therefore widespread that even Garland, Biden, the  Wa Post,   and the  New York Moments   may have to notice.

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