You may remember the LRM story from March of this year which asked the question—in the context of mortgage foreclosures—“Judges: Dupes or in on it?” From that article:
“Judges have to know what’s going on. They read the news. They’re not naive. We’re always told that judges can do whatever they want, and at some point one has to ask–if that is so, why does “whatever they want” almost always seem to be to throw homeowners in the street on the strength of fake documents?
…However, at some point we have to ask ourselves, are the judges really dupes? That is, do they really buy all the BS that Wells Fargo and the other banks are feeding them? Do they really look at a case where there are affidavits swearing that an unendorsed note is true and correct and then suddenly a “ta-da”-endorsed note appears as a deus ex machina and say, “Yeah, I totally buy that?” Given the education and experience level of most judges that hear these cases, one would expect them to have pretty sensitive bullshit detectors.
The only other explanation is that the judges are somehow complicit. That’s an uncomfortable statement to make and even more uncomfortable to actually contemplate. And it seems almost impossible to pull off, but then again, it is being pulled off…”
And so it goes throughout the judicial system, as we see in this recent story in which a federal judge ruled that while the actions of squeaky-clean, harmless, upright (yeah, right) banks such as JP Morgan and Goldman Sachs did create greater profits for said banks, there was no conspiracy among them to do so. The Daily Mail has the details:
…eight small U.S. aluminum consumers, which allege Goldman Sachs, JPMorgan Chase & Co and Glencore conspired to drive up prices by reducing supply.
One of the companies, Superior Extrusion, filed the first case in August last year, triggering over two dozen other companies to follow suit in what has become the highest profile legal action to rock the base metals market in two decades.
In an 85-page ruling last Friday that struck a big blow to their case, Judge Forrest said the plaintiffs did not show sufficient evidence that the banks and merchants intended to manipulate prices.
She did concede that the defendants’ actions had driven up prices of aluminum, which is used to make beverage cans and airplanes.
A distinction without a difference
Indeed, the judge put that last point this way:
“…this was an unintended consequence of rational profit maximizing behavior rather than the product of conspiratorial design,” she wrote.
That’s like saying an “unintended consequence” of a mugger putting a gun to a person’s head is said person giving all their money and jewelry to the mugger. The judge attempts to draw a line between “rational profit maximizing behavior” and “conspiratorial design” but since the effect of either is ultimately the same, she gives us a distinction without a difference.
The destruction of “price discovery”
Max Keiser and Stacy Herbert use this decision to illustrate one of their recurring themes—the evisceration of the “price discovery” mechanism, i.e., the mythical “invisible hand” idea that the free market will dictate the proper price for everything, making it okay that we all have to use money to pay these prices because the prices will always be set by the invisible, but assuredly correct if not benevolent hand of the market. From their discussion (begins at approximately 9:41 in the video at the top of the page):
STACY: So they did this by basically…you would put in your delivery order. You would request delivery on your order of aluminum and it would take up to 16 months. So in that time, you were paying for a warehousing fees, and it drove up the profits for Goldman Sachs, JP Morgan, and and Glencore.
Well, it also drove up the price, obviously, of cabinets, flashlights, strollers, swimming pool enclosures, cans of Coca-Cola…And the judge found:
‘In an 85-page decision, U.S. District Judge Katherine Forrest in Manhattan said there was no showing that the defendants intended to manipulate prices, though it was clear that their actions affected the aluminum marketplace.
‘As cast in the complaints, this was an unintended consequence of rational profit maximizing behavior rather than the product of conspiratorial design,’ she wrote.’
So here she takes, Max, here this woman—Judge Katherine Forrest—takes Adam Smith’s thing and says that ‘the monkeys in the trees throwing money to these people who are scrambling for the stolen money’—this is ‘rational profit maximizing behavior.’
MAX: Right. Exactly. This repudiates all we know about economics—that she has no idea how economics works. Obviously if you allow for fraud—this is what Adam Smith warned about in Wealth of Nations and The Theory of Moral Sentiments. When you allow people to get together and collude and fix prices as these bankers do, you’re gonna have destruction of the price discovery mechanism. The ‘invisible hand’ is worthless if you allow fraud to take place on this epic scale.
So clearly the judge has no—I don’t know why they would have a judge who’s an imbecile, who’s a financial illiterate, who has no idea actually how these markets work. Obviously unless we’re gonna find out, in a year or two, ‘Yeah, she took a big fat bribe.’
STACY: So, let’s look for example, at JP Morgan. They bought Henry Bath, which has been established since 1794. They’re one of the founding members of the London Metals Exchange. So we have over 200 years of data on how long it’s taken them for 200 years to deliver on clients requesting delivery.
MAX: Right—200 years of data. It makes a perfect—200 years of records—to make an informed decision. The judge looked at 200 years of data and made a ruling that repudiates everything that was staring her right in the face. That is the definition of crony capitalism. When the judicial system is in the pocket of bankers to rig markets, that’s crony capitalism.
Sounds an awful lot like the foreclosure fiasco—centuries of data, in this case, property law dictating how notes and mortgages move and behave being repudiated by courts all over America in order to help out the big banks.
Nothing new, unfortunately
Unfortunately, none of this is really new, which really isn’t all that surprising. A great link came across my Facebook feed this weekend which tells the story of the Pullman strike of 1894. In it, we learn that the government’s courts have always been joined at the hip with big business to the detriment of the working class:
[US] Attorney General Richard Olney was a leading railroad attorney who’d twice turned down appointments to the Massachusetts Supreme Judicial Court in favor of the railroad clients that paid for his Boston mansion. Though Olney accepted President Cleveland’s appointment to lead the Justice Department, he did so only after the President agreed that Olney could also remain in private practice. Yet, rather than treating Olney’s advice as suspect because of his obvious conflict of interest, Cleveland viewed Olney’s railroad ties as something that gave him insight into how to handle the strike.
In the final days of the strike, Eugene Debs was jailed for defying a federal court order requiring his union to stand down and effectively give up its First Amendment rights. In order to obtain this order in the first place, Attorney General Olney’s handpicked lieutenant, a railroad attorney named Edwin Walker, worked closely with two judges — one of the judges had recently delivered a speech claiming that a single national union could “destroy the basis on which business in the long run can be successful and debase the man” — to craft an order that would give the Managers’ a total victory over the ARU if the union complied with it. After Debs defied the order, he was tossed in jail for contempt of court, where he shared a cell with five men, six mattresses laden with bed bugs, and numerous rats who would wander freely throughout the jail.
Debs would eventually seek his freedom in the Supreme Court of the United States, but he would not have it. To the contrary, the Court’s decision in In re Debs asserted a truly breathtaking vision of the judiciary’s own power to shut down labor’s attempts to force negotiations with management. In essence, the Court’s opinion established that federal courts could issue sweeping anti-union injunctions with nationwide implications upon their own authority, regardless of whether elected officials had actually given them that power. In the coming decades, the courts would become the arch-enemies of labor. By the 1920s, after watching an entire generation of judges’ efforts to thwart the labor movement, American Federation of Labor President Samuel Gompers warned that “[t]hose who seek to retain the injunction evil and to expand it are doing the greatest disservice to our system of jurisprudence, and in fact to our system of democratic government.”
The Debs decision, moreover, was the harbinger of an era when the justices frequently treated laws intended to protect workers from rapacious employers as unAmerican and unconstitutional. In the years following Debs, the Court struck down laws intended to prevent employers from overworking their employees and laws guaranteeing workers’ right to organize and form unions. They declared the minimum wage to be an affront to the Constitution. And they doomed a generation of young laborers to a childhood toiling in coal mines and cotton mills. Few institutions inflicted more suffering on more Americans than the Supreme Court of the United States, and American workers bore much of the brunt of this suffering.
Indeed, the foreclosure fiasco and the fact that arguably, every market is rigged are merely a continuation of this policy of the courts inflicting suffering on American workers.