The Leveraged Buyout of America

Monday, August 26, 2013 by Common Dreams

Giant bank holding companies now own airports, toll roads, and ports; control power plants; and store and hoard vast quantities of commodities of all sorts. They are systematically buying up or gaining control of the essential lifelines of the economy. How have they pulled this off, and where have they gotten the money?

by Ellen Brown

In a letter to Federal Reserve Chairman Ben Bernanke dated June 27, 2013, US Representative Alan Grayson and three co-signers expressed concern about the expansion of large banks into what have traditionally been non-financial commercial spheres. Specifically:

[W]e are concerned about how large banks have recently expanded their businesses into such fields as electric power production, oil refining and distribution, owning and operating of public assets such as ports and airports, and even uranium mining.

After listing some disturbing examples, they observed:

According to legal scholar Saule Omarova, over the past five years, there has been a “quiet transformation of U.S. financial holding companies.” These financial services companies have become global merchants that seek to extract rent from any commercial or financial business activity within their reach. They have used legal authority in Graham-Leach-Bliley to subvert the “foundational principle of separation of banking from commerce”. . . .

It seems like there is a significant macro-economic risk in having a massive entity like, say JP Morgan, both issuing credit cards and mortgages, managing municipal bond offerings, selling gasoline and electric power, running large oil tankers, trading derivatives, and owning and operating airports, in multiple countries.

A “macro” risk indeed – not just to our economy but to our democracy and our individual and national sovereignty. Giant banks are buying up our country’s infrastructure – the power and supply chains that are vital to the economy. Aren’t there rules against that? And where are the banks getting the money?

How Banks Launder Money Through the Repo Market

In an illuminating series of articles on Seeking Alpha titled “Repoed!”, Colin Lokey argues that the investment arms of large Wall Street banks are using their “excess” deposits – the excess of deposits over loans – as collateral for borrowing in the repo market. Repos, or “repurchase agreements,” are used to raise short-term capital. Securities are sold to investors overnight and repurchased the next day, usually day after day.

The deposit-to-loan gap for all US banks is now about $2 trillion, and nearly half of this gap is in Bank of America, JP Morgan Chase, and Wells Fargo alone. It seems that the largest banks are using the majority of their deposits (along with the Federal Reserve’s quantitative easing dollars) not to back loans to individuals and businesses but to borrow for their own trading. Buying assets with borrowed money is called a “leveraged buyout.” The banks are leveraging our money to buy up ports, airports, toll roads, power, and massive stores of commodities.

Using these excess deposits directly for their own speculative trading would be blatantly illegal, but the banks have been able to avoid the appearance of impropriety by borrowing from the repo market. (See my earlier article here.) The banks’ excess deposits are first used to purchase Treasury bonds, agency securities, and other highly liquid, “safe” securities. These liquid assets are then pledged as collateral in repo transactions, allowing the banks to get “clean” cash to invest as they please. They can channel this laundered money into risky assets such as derivatives, corporate bonds, and equities (stock).

That means they can buy up companies. Lokey writes, “It is common knowledge that prop [proprietary] trading desks at banks can and do invest in a variety of assets, including stocks.” Prop trading desks invest for the banks’ own accounts. This was something that depository banks were forbidden to do by the New Deal-era Glass-Steagall Act but that was allowed in 1999 by the Gramm-Leach-Bliley Act, which repealed those portions of Glass-Steagall.

The result has been a massively risky $700-plus trillion speculative derivatives bubble. Lokey quotes from an article by Bill Frezza in the January 2013 Huffington Post titled “Too-Big-To-Fail Banks Gamble With Bernanke Bucks“:

If you think [the cash cushion from excess deposits] makes the banks less vulnerable to shock, think again. Much of this balance sheet cash has been hypothecated in the repo market, laundered through the off-the-books shadow banking system. This allows the proprietary trading desks at these “banks” to use that cash as collateral to take out loans to gamble with. In a process called hyper-hypothecation this pledged collateral gets pyramided, creating a ticking time bomb ready to go kablooey when the next panic comes around.

That Explains the Mountain of Excess Reserves

Historically, banks have attempted to maintain a loan-to-deposit ratio of close to 100%, meaning they were “fully loaned up” and making money on their deposits. Today, however, that ratio is only 72% on average; and for the big derivative banks, it is much lower. For JPMorgan, it is only 31%. The unlent portion represents the “excess deposits” available to be tapped as collateral for the repo market.

The Fed’s quantitative easing contributes to this collateral pool by converting less-liquid mortgage-backed securities into cash in the banks’ reserve accounts. This cash is not something the banks can spend for their own proprietary trading, but they can invest it in “safe” securities – Treasuries and similar securities that are also the sort of collateral acceptable in the repo market. Using this repo collateral, the banks can then acquire the laundered cash with which they can invest or speculate for their own accounts.

Lokey notes that US Treasuries are now being bought by banks in record quantities. These bonds stay on the banks’ books for Fed supervision purposes, even as they are being pledged to other parties to get cash via repo. The fact that such pledging is going on can be determined from the banks’ balance sheets, but it takes some detective work. Explaining the intricacies of this process, the evidence that it is being done, and how it is hidden in plain sight takes Lokey three articles, to which the reader is referred. Suffice it to say here that he makes a compelling case.

Can They Do That?

Countering the argument that “banks can’t really do anything with their excess reserves” and that “there is no evidence that they are being rehypothecated,” Lokey points to data coming to light in conjunction with JPMorgan’s $6 billion “London Whale” fiasco. He calls it “clear-cut proof that banks trade stocks (and virtually everything else) with excess deposits.” JPM’s London-based Chief Investment Office [CIO] reported:

JPMorgan’s businesses take in more in deposits that they make in loans and, as a result, the Firm has excess cash that must be invested to meet future liquidity needs and provide a reasonable return. The primary reponsibility of CIO, working with JPMorgan’s Treasury, is to manage this excess cash. CIO invests the bulk of JPMorgan’s excess cash in high credit quality, fixed income securities, such as municipal bonds, whole loans, and asset-backed securities, mortgage backed securities, corporate securities, sovereign securities, and collateralized loan obligations.

Lokey comments:

That passage is unequivocal — it is as unambiguous as it could possibly be. JPMorgan invests excess deposits in a variety of assets for its own account and as the above clearly indicates, there isn’t much they won’t invest those deposits in. Sure, the first things mentioned are “high quality fixed income securities,” but by the end of the list, deposits are being invested in corporate securities [stock] and CLOs [collateralized loan obligations]. . . . [T]he idea that deposits are invested only in Treasury bonds, agencies, or derivatives related to such “risk free” securities is patently false.

He adds:

[I]t is no coincidence that stocks have rallied as the Fed has pumped money into the coffers of the primary dealers while ICI data shows retail investors have pulled nearly a half trillion from U.S. equity funds over the same period. It is the banks that are propping stocks.

Another Argument for Public Banking

All this helps explain why the largest Wall Street banks have radically scaled back their lending to the local economy. It appears that JPMorgan’s loan-to-deposit ratio is only 31% not because the bank could find no creditworthy borrowers for the other 69% but because it can profit more from buying airports and commodities through its prop trading desk than from making loans to small local businesses.

Small and medium-sized businesses are responsible for creating most of the jobs in the economy, and they are struggling today to get the credit they need to operate. That is one of many reasons that banking needs to be a public utility. Publicly-owned banks can direct credit where it is needed in the local economy; can protect public funds from confiscation through “bail-ins” resulting from bad gambling in by big derivative banks; and can augment public coffers with banking revenues, allowing local governments to cut taxes, add services, and salvage public assets from fire-sale privatization. Publicly-owned banks have a long and successful history, and recent studies have found them to be the safest in the world.

As Representative Grayson and co-signers observed in their letter to Chairman Bernanke, the banking system is now dominated by “global merchants that seek to extract rent from any commercial or financial business activity within their reach.” They represent a return to a feudal landlord economy of unearned profits from rent-seeking. We need a banking system that focuses not on casino profiteering or feudal rent-seeking but on promoting economic and social well-being; and that is the mandate of the public banking sector globally.

Big Banks and Drug Money

Apologize Then Call it a Day
by HELEN REDMOND

The illicit drug trade relies heavily on money laundering because it is almost exclusively a cash business. Drug interdiction, while an essential component of attacking the illicit drug trade cannot, standing alone, reverse the tide of illicit drugs. Combating money laundering, combined with strong interdiction efforts, offers a more effective law enforcement response.
- Money Laundering in Florida: Report of the Legislative Task Force, 1999

Stuart Gulliver, the Chief Executive of the London-based international banking giant HSBC said: “We accept responsibility for our past mistakes. We have said we are profoundly sorry for them and we do so again… What happened in Mexico and the US is shameful, it’s embarrassing, it’s very painful for all of us in the firm…The HSBC of today is a fundamentally different organization from the one that made those mistakes.”

What was Mr. Gulliver apologizing for and was he sincere? His bank got caught laundering tons of cash for drug cartels and alleged terrorists. That is a crime.

Lanny Breuer, the Assistant Attorney General for the Department of Justice (DOJ) explained at a press conference, “HSBC is being held accountable for stunning failures of oversight – and worse – that led the bank to permit narcotics traffickers and others to launder hundreds of millions of dollars through HSBC subsidiaries… The record of dysfunction that prevailed at HSBC for many years was astonishing.”

U.S. Attorney Loretta Lynch added, “HSBC’s blatant failure to implement proper anti-money laundering controls facilitated the laundering of at least $881 million in drug proceeds through the U.S. financial system…”

As punishment, HSBC was assessed a fine of 1.9 billion — about four weeks’ worth of its pre-tax profits. No bank officials who were caught red-handed will be prosecuted or imprisoned.

Take responsibility, apologize, pay a fine for your drug crimes and then call it a day. Go home to family who will forgive you for doing business with so-called “narco-terrorists.” Prison time? Felony record? Asset forfeiture? No. Not for drug trafficking executives of laundromat/banks that are “too big to fail” or jail.

It is not so for those individuals and organizations that provide other, equally vital services to the $400 billion illicit drug trade. From the heads of Afghan drug cartels, to drug couriers like the Panamanian woman who had cocaine implanted in her breasts, to injection drug users in America’s needle parks, they will be demonized as purveyors of poison and death then punished severely. They won’t go home for a very long time, if ever.

The U.S. justice system will mete out life sentences without the possibility of parole or mandatory minimum sentences of decades to drug kingpins, mules and the drug addicted. Drug law offender’s lives behind bars will become a dystopia that the profits of the privatized correctional industries depend on.

The convicted will be disappeared in to twenty-first century concentration camps in remote, rural towns. Some prisoners will end up in solitary confinement and be driven mad. Their children will be orphaned and their families destroyed by shame, lack of visitation and communication.

Everything will be legally stolen from drug law violators. Cars, jewelry, family heirlooms, clothes, cash, homes and property will be seized and put up for sale to benefit various branches of law enforcement.

Check out the Asset Forfeiture Program at the DOJ website. You can bid on Rita A. Crundwell’s farmland in Dixon, Illinois. If you prefer a warmer climate, there is beachfront property for sale in the Dominican Republic.

Admitting guilt, apologizing, promising “fundamental” change and paying a financial penalty will not suffice for the poor, low hanging fruit convicted of drug crimes. They have to be taught a “tough love” lesson in zero tolerance, and this: “You do the crime, you do the time.”

This stripping the person of everything that connects them to society and to other human beings and locking them up in spaces smaller than a bathroom has to happen because as the Mission Statement of the Drug Enforcement Administration (DEA) asserts, those involved in the drug trade are criminals who “…perpetrate violence in our communities and terrorize citizens through fear and intimidation.” The DEA and the DOJ’s unapologetic modus operandi in the forty-year long War on Drugs is, Lock ‘em up and throw away the key!

Except when the criminals are rich, well-connected bankers who wash drug trafficker’s dirty Benjamin Franklin’s clean. Tough on crime and the rule of law doesn’t apply to them.

DOJ attorneys argued that aggressively prosecuting HSBC could destabilize the entire international banking system. Breuer said in an interview with the Washington Post, “If you prosecute one of the largest banks in the world, do you risk that people will lose jobs, other financial institutions and other parties will leave the bank, and there will be some kind of event in the world economy?” In other words, banks that break the law by laundering money for drug cartels and rogue states are immune from criminal prosecution because a global financial meltdown could be triggered.

But that didn’t happen twenty-five years ago when the Bank of Credit and Commerce International Bank (BCCI) was prosecuted for laundering drug profits. Like HSBC, BCCI did business with an international cast of unsavory drug dealers and dictators. BCCI helped former Panamanian dictator Manuel Noriega and the Columbian Medellin cocaine cartel convert millions of dollars into pesos. An aggressive investigation led by Senator John Kerry and New York District Attorney Robert Morgenthau concluded that BCCI was “one of the biggest criminal enterprises in world history.”

BCCI was indicted for money laundering, grand larceny and bribery. Bank branches were shut down in seven countries and restricted in dozens more. The criminals at BCCI were punished and effectively put out of business. They got drug war tough love and the world banking system didn’t crash.

The convictions almost didn’t happen. The Bush Administration only wanted a slap on the wrist for BCCI, but Kerry was apoplectic. He went on national television slamming the hypocrisy: “We send drug people to jail for the rest of their life, and these guys who are bankers in the corporate world seem to just walk away, and it’s business as usual…When banks engage knowingly in the laundering of money, they should be shut down. It’s that simple, it really is.”

That was in 1999. Where is Senator Kerry and the rest of Congress’s outrage for the career drug criminals at HSBC that facilitated the illegal deposit of millions of dollars packed into specially designed boxes that would fit through the bank’s teller windows in Mexico?

Why isn’t the Senate Permanent Subcommittee on Investigations that accused HSBC of exposing the United States “financial system to money laundering and terrorist financing risks” and for violating the Trading With the Enemy Act screaming hysterically that those who fund “narco-terrorism” must be punished to keep America safe?

The most Congress could muster was a letter written by Rep. Barney Frank to Attorney General Eric Holder asking him to reconsider the agreement with HSBC. A letter. Wow! That’s tough on crime?

How come the nation’s top drug warrior Michelle Leonhart, Administrator of the DEA, isn’t demanding that HSBC officials pay for their crimes? According to an investigation by Immigration and Customs Enforcement (ICE), from 2006 to 2010 the bank laundered millions in profits for the Sinaloa drug cartel in Mexico and the Norte Del Valle cartel in Columbia through the Black Market Peso Exchange (BMPE.)

And why isn’t Leonhart extraditing Gulliver and other senior bank executives to the United States to face drug trafficking and narco-terrorism charges?

The DEA and the DOJ gloat in their ability to extradite or simply seize alleged drug kingpins from all over the world and bring them to the United States to stand trial – especially suspects from Afghanistan and Latin America. They’re not concerned about the impact that these extraditions will have on the international drug trade. The consequence is often an uptick in violence and murder as internecine fighting erupts to reconfigure drug markets.

The case of Haji Bagcho, a 70-year-old Afghan man convicted of drug trafficking and narco-terrorism reveals the double standard of the DEA and the DOJ when it comes to who they chose to criminally prosecute for drug crimes. Afghan drug traffickers are shown no leniency, are never offered sweetheart deals and are prosecuted to the full extent of the law.

Both Breuer and Leonhart expressed outrage and contempt for Bagcho’s alleged crimes. Breuer said, “Haji Bagcho led a massive drug production and trafficking operation that supplied heroin in more than 20 countries, including the United States. In 2006 alone, he conducted heroin transactions worth more than $250 million. Today’s life sentence is an appropriate punishment for one of the most notorious heroin traffickers in the world.”

Leonhart added with her usual bravado, “This is DEA at its finest, working in close collaboration with our Afghan partners to end the long reign of this Afghan drug lord whose drug proceeds financed terror. One of the world’s most prolific drug traffickers who helped fund the Taliban will spend his remaining days behind bars in a U.S. prison…”

Now imagine those words being hurled at Mr. Gulliver and his “massive” operation (HSBC has branches in 85 countries) “whose drug proceeds financed terror.” Imagine “notorious,” high-level HSBC officials spending their “remaining days behind bars in a U.S. prison.” Hard to imagine isn’t it?

But not for Afghans like Haji Bagcho or Haji Bashar who was also given a life sentence even though he cooperated with the DEA and the DOJ. And there’s Haji Juma Khan. He’s been held in solitary confinement awaiting trial since he was extradited to the United States in 2008. Incarcerating Bagcho, Bashar and Khan hasn’t weakened the Taliban or made a dent in the Afghan drug trade. Afghanistan retains its premier position as the number one grower of poppy and exporter of heroin to Central Asia and Europe. Moreover, Afghans are involved in the illicit drug trade out of economic necessity as are Mexicans, because the legal economies in both countries are in shambles. British bankers have no such reason – their motive is pure greed.

It is a mathematical certainty that as long as drugs are illegal, banks will continue to launder drug trafficker’s money. Superprofits are guaranteed and the financial penalties aren’t a deterrent.

The HSBC scandal shows how the illicit drug trade is completely integrated into the world financial system. I In the face of the enormous economic power of the global banking industry to circumvent anti-laundering regulations, winning the war on drugs is utterly futile.

The only solution is to legalize and regulate the sale of all drugs. It is an inescapable reality that heroin, cocaine, methamphetamine and marijuana are global commodities that cross all borders. Millions of people buy drugs and making them illegal has never stopped the use or abuse of them.

Ending the war on drugs would not only save human lives and billions of dollars, it would free up law enforcement agencies to investigate and prosecute banks whose real crimes are far worse than laundering drug money.

Wall Street's Role in Narco-Trafficking

"Business is Booming" 
By MIKE WHITNEY

Imagine what your reaction would be if the Mexican government agreed to pay Barack Obama $1.4 billion to deploy US troops and armored vehicles to New York, Los Angeles and Chicago to conduct military operations, set up check points, and engage in fire-fights that end up killing 35,000 US civilians on the streets of American cities. 

If the Mexican government treated the United States like this, would you consider them a friend or an enemy? 

This is exactly how the US is treating Mexico, and it's been going on since 2006.

America's Mexican policy--The Merida Initiative--is a nightmare. It's undermined Mexican sovereignty, corrupted the political system, and militarized the country. It's also resulted in the violent deaths of thousands of mostly poor civilians. But Washington doesn't give a hoot about "collateral damage" as long as it can sell more weaponry, strengthen its free-trade regime, and sluice more drug profits into its big banks. Then everything is just Jim-dandy. 

There's no point in dignifying this butchery by calling it a "War on Drugs"?

That's nonsense. What we're seeing is a giant powergrab by big business, big finance and the US Intel services. Obama is merely doing their bidding, which is why--not surprisingly--things have gotten a lot worse under his administration.  Obama has not only stepped up the funding for Plan Mexico (aka--Merida) but also deployed more US agents to work undercover while US drones carry out surveillance duty. Get the picture? This isn't some little drug bust; it's another chapter in America's War on Civilization.

Here's an excerpt from an article in CounterPunch by Laura Carlsen that gives a little background:

"The drug war has become the major vehicle of militarization in Latin America. It's a vehicle funded and driven by the U.S. government and fueled by a combination of false morals, hypocrisy and a lot of cold, hard fear. The so called ‘war on drugs’ is really a war on people, especially youth, women, indigenous peoples and dissidents. The drug war has become the main way for the Pentagon to occupy and control countries at the expense of whole societies and many, many lives.

“Militarization in the name of the drug war is happening more quickly and more thoroughly than most of us probably anticipated under the Obama administration. The agreement to establish bases in Colombia, later suspended, sent out one of the first signals of the strategy. And we've seen the indefinite extension of the Merida Initiative in Mexico and Central America, and even, sadly, war boats sent to Costa Rica, a nation with a history of peace and no army...

“The Merida Initiative funds U.S. interests to train security forces, provide intelligence and war technology, give advice on reforming the justice and penal systems and promoting human rights–all in Mexico.” (The Drug War Can't Be Improved, It Can Only be Ended, Laura Carlsen, Counterpunch)

If it looks like Obama is doing his best to turn Mexico into a military dictatorship, it's because he is. Plan Mexico is a sham that conceals the administration's real motives, which is to make sure that the lavish profits from the drug trade end up in the right people's pockets. That's what this is all about, big money.  And that's why the death toll has soared while the Mexican government's credibility has hit its lowest ebb in decades. US policy has turned large swaths of the country into killing fields and it's only getting worse. 

Check out this interview with Charles Bowden who describes what life is  like for the people who live at Ground Zero in the drug war; Juarez, Mexico:

"This is in a city where people live in cardboard boxes sometimes. Ten thousand businesses have given up and closed in the last year. Thirty to sixty thousand people from Juárez, mainly the rich, have moved across the river to El Paso for safety, including the mayor of Juárez, who likes to bunk in El Paso. And the publisher of the newspaper there lives in El Paso. Somewhere between 100,000 and 400,000 people simply left the city. A lot of the problem is economic, not simply violence. At least 100,000 jobs in the border factories have vanished during this recession because of the competition from Asia. There’s 500 to 900 gangs there, estimates vary.

“So what you have is about 10,000 federal troops and federal police agents all marauding. You have a city where no one goes out at night; where small businesses all pay extortion; where 20,000 cars were officially stolen last year; where 2,600-plus people were officially murdered last year; where nobody keeps track of the people who have been kidnapped and never come back; where nobody counts the people buried in secret burying grounds, and they, in an unseemly way, claw out of the earth from time to time. You’ve got a disaster. And you have a million people, too poor to leave, imprisoned in it. That’s the city." (Charles Bowden, Democracy Now)

This isn't about drugs; it's about a crackpot foreign policy that supports proxy-armies to impose order through police-state repression and militarization.  It's about expanding US power and beefing up profits on Wall Street. 

Here's more background from author Lawrence M. Vance at the The Future of Freedom Foundation:

"An undisclosed number of U.S. law-enforcement agents work in Mexico... The DEA has more than 60 agents in Mexico. There are in addition 40 Immigration and Customs Enforcement agents, 20 Marshal Service deputies, and 18 Alcohol, Tobacco, Firearms and Explosives agents, plus agents from the FBI, Citizen and Immigration Service, Customs and Border Protection, Secret Service, Coast Guard, and Transportation Safety Agency. The State Department also maintains a Narcotics Affairs Section. The United States has also provided helicopters, drug sniffing dogs, and polygraph units to screen law-enforcement applicants.

“U.S. drones spy on cartel hideouts, and U.S. tracking beacons pinpoint suspectS’ cars and phones. U.S. agents track beacons, trace cell-phone calls, read e-mails, study behavioral patterns of border incursions, follow smuggling routes, and process data about drug dealers, money launderers, and cartel bosses. According to a former Mexican anti-drug prosecutor, U.S. agents are not restricted from eavesdropping on anyone in Mexico by U.S. laws that require judicial authority as long as they are not on U.S. territory and not bugging American citizens. ("Why Is the U.S. Fighting Mexico's Drug War?"  Laurence M. Vance, The Future of Freedom Foundation)

This isn't foreign policy; it's another US occupation. And, guess who's raking in the big cashola on this sordid little scam?  Wall Street. That's right, the big banks are getting their cut just like they always do. Take a look at this excerpt from an article by James Petras titled "How Drug Profits saved Capitalism" at Global Research. It's a great summary of the objectives that are shaping the policy:

"While the Pentagon arms the Mexican government and the US Drug Enforcement Agency enforces the ‘military solution’, the biggest US banks receive, launder and transfer hundreds of billions of dollars to the drug lords’ accounts, who then buy modern arms, pay private armies of assassins and corrupt untold numbers of political and law enforcement officials on both sides of the border....

“Drug profits, in the most basic sense, are secured through the ability of the cartels to launder and transfer billions of dollars through the US banking system. The scale and scope of the US banking-drug cartel alliance surpasses any other economic activity of the US private banking system. According to US Justice Department records, one bank alone, Wachovia Bank (now owned by Wells Fargo), laundered $378.3 billion dollars between May 1, 2004 and May 31, 2007 (The Guardian, May 11, 2011). Every major bank in the US has served as an active financial partner of the murderous drug cartels...

“If the major US banks are the financial engines which allow the billion dollar drug empires to operate, the White House, the US Congress and the law enforcement agencies are the basic protectors of these banks.....Laundering drug money is one of the most lucrative sources of profit for Wall Street; the banks charge hefty commissions on the transfer of drug profits, which they then lend to borrowing institutions at interest rates far above what – if any – they pay to drug trafficker depositors. Awash in sanitized drug profits, these US titans of the finance world can easily buy their own elected officials to perpetuate the system. ("How Drug Profits saved Capitalism" , James Petras, Global Research)

Repeat: "Every major bank in the US has served as an active financial partner of the murderous drug cartels..."

The War on Drugs is a fraud. This isn't about interdiction; it's about control. Washington provides the muscle so the banks can rake in the big doe. One hand washes the other, just like the Mafia.

Too Big to Do Time?

Fed Wrist-Slap for Wachovia Makes Farce of Drug War
By LINN WASHINGTON, Jr.

The U.S. government won convictions against 23,506 drug traffickers nationwide during 2010, sending 96 percent of the offenders to prison, according to U.S. Sentencing Commission statistics.

Yet one of the biggest entities busted by the feds for involvement in drug trafficking last year received just a wrist-slap deal from federal prosecutors with nobody getting prison time.

During 2010, the U.S. government also won convictions against 806 persons involved in smaller-time drug-related money laundering, sending nearly 77 percent of those offenders to prison.

Yet when it came to a case involving billions of dollars in illegal drug profits, the federal government gave the same unusual wrist-slap to the same entity caught giving greed-blinded assistance to Mexican drug cartels by laundering billions of dollars in illegal profits for them.

So, what is this entity that federal prosecutors found worthy of big breaks for its laundering of billions of dollars, and for its blatant facilitating or tons of smuggled cocaine?

Meet Wachovia – once the nation's sixth largest bank by assets and now a part of Wells Fargo Bank… a too-big-to-fail bank that for the feds is apparently too-big-to jail.

Wachovia recently completed what amounted to a year-long probation arising from a March 2010 settlement deal with federal prosecutors who were pursuing criminal proceedings against Wachovia for its facilitating of illegal money transfers from Mexico totaling $378-billion…a staggering sum greater than half of the Pentagon's annual budget, which included billions of dollars traced directly to violent Mexican drug cartels.

The record $160-million fine slapped on Wachovia under terms of that settlement deal included a $50-million assessment for failing to monitor cash used to ship into the US 22 tons of cocaine. (That fine amounted to less than two percent of Wachovia's profits during the prior year.)

Wells Fargo now owns Wachovia. Wells Fargo, federal prosecutors stress, was not involvement in the misdeeds that landed Wachovia in court, where it received a deferred prosecution deal.

Wells Fargo purchased Wachovia in early 2009 for $12.7-billion, shortly after Wells Fargo had received $25-billion in federal bail-out funds from the TARP program. That purchase helped make Wells Fargo America's second-largest bank.

Many condemn the federal government settlement with Wachovia as a farce.

Criticism has come from persons in law enforcement frustrated by big-bank involvement in laundering drug money and from those who claim federal drug enforcement practices provide bigger breaks to drug kingpins than to low-level operators.

"All the law enforcement people wanted to see this come to trial. But no one goes to jail," said Martin Woods, an English expert on anti-money laundering, whose work while with Wachovia's London office helped unravel the drug connections. Woods says Wachovia officials bashed him for his investigative diligence and whistle-blowing as an employee.

"It's simple: it you don't see the correlation between the money laundering by banks and people killed in Mexico, you're missing the point," Woods said in an April 3, 2011 article published in The Observer, a British newspaper published on Sundays.

Wachovia's involvement in big-time money laundering paralleled the period of a murderous escalation in violence in Mexico's Drug War that has claimed the lives of over 40,000 Mexicans since 2006 alone, with the dead including politicians, prosecutors, police, soldiers, drug gang members and innocent bystanders.

During the same month last year when federal prosecutors gave Wachovia a break, finding no need to imprison any bank personnel for their involvement in massive drug-tainted money laundering, other federal prosecutors were pounding domestic drug dealers with long prison sentences.

For example, an Anchorage, Alaska man received a ten-year term for selling four ounces of crack cocaine, while an East St. Louis, Ill. businessman received a life sentence plus a $2.25-million fine for distributing three thousand pounds of cocaine between 2004 and his arrest in April 2008.

The amount of cocaine trafficking that sent the Illinois man to prison for life – one and a half tons - was much smaller than that single 22 ton cocaine shipment referenced in the Wachovia settlement document.

The settlement agreement Wachovia officials signed with federal prosecutors in Miami last year clearly stated that the bank knew that many of the transactions with Mexican financial institutions from 2004 to 2007 carried the stench of drugs.

That settlement agreement stated in part that as early as "2005 Wachovia was aware that other large US banks were exiting the [Mexican] business based on [anti-money laundering] concerns…Despite these warnings, Wachovia remained in business" according to news media reports.

One reason Wachovia stayed in the business as others pulled out is that the bank reaped hefty fees from that money-laundering "business," in which billions of dollars in wire transfers, traveler's checks and bulk cash shipments went into Wachovia accounts from Mexican exchange facilities called casa de cambios (CDCs).

Jeffery Solman, the federal prosecutor who handled the Wachovia case, stated last year that "Wachovia's blatant disregard for our banking laws gave international cocaine cartels a virtual carte blanche to finance their operations."

Last year Bloomberg News, in an article on the Wachovia money laundering scandal, reported how the federal government cited other mega-financial institutions in the U.S. like American Express Bank International and Bank of America for their complicity in laundering drug money.

Making a farce out of the nation's supposed War on Drugs, none of the mega-financial institutions identified by federal authorities as having been involved with laundering drug money and none of the well-paid individuals at those institutions which were facilitating that laundering has faced go-to-jail federal criminal prosecutions like those targeting small fry in the drug trade.

Days after Wachovia received its wrist-slap deal for laundering billions of dollars in drug money, federal prosecutors secured a five-year sentence for a 26-year-old Johnstown, Pa. man involved with a drug ring it claimed was responsible for $10,000 in drug sales per month.

Imprisoning that Johnstown street dealer for five years will cost taxpayers $113,115, based on the average cost of $22,623 annually to house a federal prisoner. He was one of six people netted during a drug crackdown in that small former steel town located in the mountains 66 miles east of Pittsburgh.

Alarming evidence of the Drug War farce – the prosecutorial pounding of small fry while major players get a pass – is evident in statistics from the U.S. Sentencing Commission, the federal agency that advises Congress on criminal sentencing matters.

During 2009, in the Southern Florida district where Miami is located, 96.1 percent of the 669 persons convicted in federal courts for drug trafficking received prison time. Twenty-percent of the persons convicted in Southern Florida federal courts for simply possessing drugs received prison time.

Of the 67 persons convicted of money laundering during 2009 in those same Southern Florida courts, 77.6% went to prison, according to U.S. Sentencing Commission statistics.

As noted in that April 2011 article in The Observer, the conclusion of the Wachovia case "was only the tip of an iceberg, demonstrating the role of the "legal" banking sector in swilling hundreds of billions of dollars – the blood money from the murderous drug trade in Mexico and other places in the world – around their global operations, now bailed out by the taxpayer."

That Observer article included observations made in 2008 by the then head of the United Nations office on drugs and crime providing evidence suggesting that drug/crime money was "the only liquid investment capital" available to banks on the brink of collapse.

"Inter-bank loans were funded by money that originated from the drug trade," the Observer article quoted the U.N. official as stating. "There were signs that some banks were rescued that way."

The June 2010 Bloomberg News article provided an ominous observation about the wrist-slap protection large banks receive from criminal indictments due to a variant of the too-big-to-fail theory:

"Indicting a big bank could trigger a mad dash by investors to dump shares and cause panic in financial markets," says Jack Blum, a U.S. Senate investigator for 14 years and a consultant to international banks and brokerage firms on money laundering. The theory is like a get-out-of-jail free card for big banks, Blum says.

Another anti-money laundering expert disappointed with the federal government's settlement with Wachovia is Robert Mazur, identified in the Observer article as one of the world's "foremost figures" in providing anti-money laundering training and the point-man for US law enforcement during prosecutions against Columbian drug cartels two decades ago.

Mazur told The Observer, "The only thing that will make the banks properly vigilant to what is happening is when they hear the rattle of handcuffs in the boardroom."

Illegal Scams That Should Put Wall St. Bankers Behind Bars

From laundering drug money to gouging you on overdrafts, here are five scams where Wall Street ran afoul of the law.
By Zach Carter, AlterNet
Posted on September 21, 2010

Unchecked greed and financial insanity on Wall Street crashed our economy. Much of that insanity was legal -- bankers lobbied hard for weak regulations, and got what they paid for. But much of that craziness was outright illegal, and in recent months, a number of shocking scams have come to light that could result in huge fines for banks or even put bankers behind bars. Though Wall Street has yet to see serious prosecutions for the current calamity, prosecutions are not at all uncommon after financial crises -- more than 1,000 bankers went to prison after the savings and loan debacle alone.

From laundering drug money to scamming you on overdrafts, here are five recent Wall Street scandals that have "illegal" written all over them. The SEC is attempting to settle civil fraud charges it has filed in many of these cases, but in finance, the only difference between civil fraud and criminal fraud is the burden of proof. If the Justice Department wanted to go after many of these crooked dealers, it could.

1) Wachovia Launders $380 Billion in Drug Money

The financial crisis is full of complex schemes and indecipherable acronyms, but the most astonishing alleged fraud of the entire mess is pretty straightforward: Wachovia allowed Mexican drug cartels to launder $380 billion of drug money through its bank, repeatedly looking the other way and ignoring internal whistleblowers who alerted them to the problem.

This was a clear violation of federal law, but Wachovia appears to be getting away with it. The Justice Department is not seeking an indictment against the company, out of fears that it could destabilize financial markets. Instead, it's reached a "deferred prosecution agreement" -- effectively a settlement -- in which the bank agrees to pay $160 million and promise to never, ever launder drug money again.

Pretty light penalty for, you know, laundering drug money. The fine amounts to about one-half of one-hundredth of a percent of the drug money that DOJ says passed through the bank. Outside the too-big-to-fail world, getting caught laundering billions of dollars in drug money doesn't just earn you hefty fines, it plants you in jail.

And Wachovia wasn't alone. According to the U.N., laundering drug money was common during the darkest days of the financial crisis, as faltering banks sought to get their hands on any money they could find -- regardless of where it came from.

2) Chamber of Commerce Launders AIG's Lobbying Cash

Money laundering has been very profitable for Wall Street, and not just drug money. The U.S. Chamber of Commerce is a lobbying front-group for a lot of powerful corporations, and some of its most aggressive members are Wall Street titans. A watchdog group has filed a complaint with the Internal Revenue Service accusing the Chamber and notorious AIG kingpin Maurice "Hank" Greenberg of tax fraud. Greenberg was ousted from AIG in 2005 amid a massive accounting scandal, but not before helping to establish the insurance giant's ridiculous credit default swap wing, which would destroy the company only a few years later.

Greenberg and the Chamber are accused of abusing a charity in order to hide millions of dollars in lobbying expenditures by AIG. In 2003, a foundation handled by Greenberg gave $5 million to the charitable wing of the Chamber of Commerce. The Chamber operates a charity called the National Chamber Foundation. The next year, Greenberg's foundation gave another $10 million to the Chamber's charity. In 2003 and 2004, 80 percent of the National Chamber Foundation's budget was coming from Greenberg and AIG. The charity's main function was to serve as a front for AIG lobbying.

Guess what? According to U.S. Chamber Watch, that money was turned over to the Chamber's lobbying arm. At the time, the Chamber was raising tons of money to help reelect President George W. Bush, and AIG was trying to weaken accounting fraud laws. It's illegal for a tax-exempt charity to funnel money to political operations. If the allegations are true, the Chamber's charity would be shut down.

3) The $40 Billion Subprime Lie From Citibank and Robert Rubin

As the subprime mortgage market was falling apart in 2007, Citibank was trying to calm investor fears about a total meltdown -- just like every other big Wall Street bank. Its chief tactic was to highlight that it had "only" $13 billion in subprime mortgage holdings, repeatedly touting the figure publicly.

The statement was true, if you ignored another $40 billion in subprime exposure that the firm held. Lying to shareholders is a major no-no in Corporate America -- it's considered securities fraud, and people can go to jail for it. The SEC is attempting to settle with Citi, but isn't recommending criminal prosecutions or even charging individuals with formal wrongdoing. Instead, the SEC wants to fine Citi shareholders $75 million -- a total slap in the face to basic conceptions of fairness, not to mention American taxpayers. See, if Citi execs did what the SEC says they did, then they were hurting their own shareholders. As punishment, the SEC wants to impose a fine on those same shareholders, the very parties who were wronged.

What's more, the U.S. government took a stake in Citi as part of its epic bailout of the poorly managed financial behemoth. Taxpayers are being asked to help foot the bill for wrongs committed by the executives we bailed out. Thanks a lot, SEC.

The SEC has filed documents indicating that both Citi CEO Chuck Prince and board member Robert Rubin knew about the inaccurate statements, but isn't filing charges against them. The stiffest penalty the SEC wants to impose on a Citi executive under the settlement is a $100,000 fine against Citi CFO Gary Crittenden. Crittenden took home $19.4 million in 2007 alone. I'll bet he's really sweating the rounding error on his bonus.

Fortunately, a federal judge has so far refused to sign off on the SEC's settlement, calling it far too weak given the seriousness of the allegations. The SEC shouldn't just be seeking huge fines against executives, it should be working with prosecutors on criminal cases.

4) Merrill Lynch: Inventing Fake Demand For Subprime Junk

This beauty of a scandal was uncovered by two investigative journalists at ProPublica. Like much of what happened on Wall Street over the past decade, it's complicated, clever and totally corrupt.

During the boom years of the housing bubble, Merrill Lynch was top producer of fancy financial products called "Collateralized Debt Obligations," or CDOs. Thousands of mortgages were packaged together and sliced up into securities called mortgage-backed securities, or MBS. Those MBS, in turn, were cobbled together to create a CDO -- creating a byzantine product that former Merrill CEO John Thain now acknowledges was simply too complex to value -- even supercomputers couldn't figure the damn things out.

But creating gimmick securities and selling them to investors wasn't the scam that caught ProPublica's attention: shady as it was, just about everybody on Wall Street did that. When Merrill sold its CDOs to investors, it divided the big mess into different tiers, known as "tranches," reflecting different levels of risk. The riskiest tranche of the CDO fetched the highest price, because it was the most likely to default, while the "safest" tranche fetched the lowest price. But as investors began to worry about the subprime craze in 2006, they stopped ponying up for the risky bits.

But this lack of demand was no problem for Merrill. When it couldn't offload the tranche from one of these garbage CDOs, it just created a new CDO, and used the new security to buy up the unwanted junk from the old one. The result was a catastrophic daisy chain, in which Merrill was able to keep producing new CDOs by inventing fake demand -- all while subjecting itself to dangerous levels of risk. By 2007, a full 42 of the bank's 92 CDOs included pieces of other CDOs it had previously sold -- 46 percent.

Often, two newly created CDOs would simply swap assets with each other. ProPublica says a full $107 billion worth of CDOs were created and traded assets within days.

Merrill wasn't the only bank to engage in this behavior. According to ProPublica, Goldman Sachs, Citigroup and Swiss scandal-magnet UBS all did so as well. But Merrill was the leader, packaging the most CDOs and the most CDOs with gimmicked demand. These practices had a significant effect on the real economy -- they kept mortgage prices inflated and kept the subprime machine moving, allowing the housing bubble to grow larger and more devastating. The SEC is investigating the practice for evidence of fraud.

5) Wells Fargo Overdraft Theft

Ever wonder how you managed to rack up such high overdraft fees? Well, there's a decent chance you didn't. U.S. banks scored an astonishing $38 billion in overdraft revenues in 2009 -- pretty impressive for an industry whose total combined profit was just $12.5 billion that same year. For years, banks have been rearranging the order of their customers' checking transactions, hoping to push account balances down to zero faster so they can charge more fees.

Say you've got $80 in your checking account, and need to pay some bills and run a couple of errands. You spend $30 on gas and another $20 on your water bill. Later, you head to the grocery store and spend $81 -- oops! -- on groceries. Any reasonable person would believe that the last transaction put you over the edge and earned you an overdraft fee, but megabanks aren't reasonable people. Instead, the bank automatically processes your $81 purchase ahead of your previous charges. As a result, you do not get hit with one overdraft fee for your groceries, you get hit with three, because your costliest purchase was processed before the others -- even though you made the cheaper purchases first.

Now, there's no reason why banks can't, say, notify you about your overdrafts before approving them. In the example above, you could have put the tomatoes back on the shelf and saved yourself $39. But reordering transactions is beyond the pale -- if bankers did this with their stock options, it'd be called "backdating" and it could land them in a federal penitentiary.

A judge in California has now said that this practice violated state law, and has ordered Wells Fargo bank to return hundreds of millions of dollars in such ill-gotten gains to its California customers. But Wells Fargo wasn't alone -- every major U.S. bank had overdraft programs that worked the same way Wells Fargo's did.

Chamber of Commerce Allegedly Laundered Millions in Charity Dollars to Defeat Financial Reform & Re-Elect Republicans

A watch-dog group charged that the CoC violated U.S. tax laws by funneling $18 million from its charitable, non-profit arm into lobbying.
By Joshua Holland, AlterNet
Posted on September 13, 2010

According to a complaint filed with the Internal Revenue Service last week, the U.S. Chamber of Commerce (CoC), the corporate right’s massive lobbying arm, laundered millions of dollars in charitable contributions to finance its political assault on the American working class.

The New York Times notes that the Chamber has “a war chest rivaling that of the Republican Party itself” and represents “the Obama administration’s most-well-financed rival on signature policy debates like health care and financial regulation.” According to the Washington Post, the $44.3 million the group has paid to lobbyists so far this year, along with the $50 million it plans on spending to elect business-friendly politicians this fall, will make it the top lobbyist in Washington once again. (The group is nevertheless unlikely to top the $144 million it spent buying political influence in 2009.)

Those expenditures represent the day-to-day business of the Chamber. But according to the complaint filed last week by U.S. Chamber Watch, a watch-dog group, the CoC violated U.S. tax laws by funneling $18 million in loans and grants that the Starr Foundation gave to the Chamber’s charitable, non-profit arm, the National Chamber Foundation into the CoC’s lobbying efforts. The Starr Foundation was created by AIG’s founder, Cornelius Vander Starr, and is led by former CEO Maurice Greenberg. According to Chamber Watch’s complaint, none of the group’s $12 million in principle loans had been repaid, and the “money appeared to have been given to the chamber’s foundation for unrestricted use.”

According to a New York Times analysis of the complaint:

The money, in violation of nonprofit restrictions, was ultimately funneled to the chamber itself and used to finance broader political causes, including support for legal tort reform to shield companies like A.I.G. from liability. Mr. Greenberg himself had worked to promote restrictions on lawsuits, the complaint notes.

Christy Setzer, a spokeperson for Chamber Watch, told AlterNet that the cash was ultimately funneled to the chamber itself where it was used to further its political agenda. “The Starr Foundation began giving about a million dollars per year to the National Chamber Foundation in 2000," she said. "Then in 2003, the Starr Foundation gives $5 million and then another $10 million in the following year. And subsequently, in the same time period, it appears that the National Chamber Foundation turns around and gives that money to the Chamber itself.”

“What’s interesting about all of this is what was happening at the time,” Setzer said. She noted that the cash was transferred during a time when the Chamber was amassing a massive war chest for the re-election of George W. Bush in 2004, and also when AIG was lobbying hard to roll back greater oversight of the financial industry’s accounting practices. “While the Chamber and AIG were campaigning against laws to crack down on accounting fraud, they were potentially committing accounting fraud of their own,” she said.

According to Setzer, during those years, 80 percent of the National Chamber Foundation’s operating budget was provided by the Starr Foundation. “There’s a question about what the role of the National Chamber Foundation really was other than to be a pass-through organization for this money.”

Stan Harrell, chief financial officer for the Chamber of Commerce, told the New York Times that the Chamber Watch complaint was politically motivated and that the CoC had disclosed the transaction as required under the law.

Mr. Harrell said that the funding from the Starr Foundation was listed in tax documents as a loan only in the most technical sense and that it was never intended to be paid back. Instead, he said, the money was restricted for long-term use on educational and research projects as part of the chamber’s capital plan and was invested by the chamber to ensure the Starr Foundation a set rate of return.

“We wanted to make sure we guaranteed the investment return,” Harrell told the Times. “Legally, that has to be represented as a loan.” But according to Setzer, the CoC’s potential legal problems stem from the fact that charitable organizations cannot give money to a political organization in the first place. “The issue isn’t that the money flowed from a charitable organization to a political organization and then was used for political purposes,” she told AlterNet. “The issue is that it flowed there at all … so their answer doesn’t respond to the legal complaint.”

The stakes surrounding the complaint are high. According to Setzer, if the IRS upholds it, the National Chamber Foundation would lose its status as a tax-exempt charitable organization. “Effectively, the National Chamber Foundation would cease to exist,” she said.

Carbon trading a front for money-laundering?

Agence France-Presse | Singapore, July 17, 2010

Organised crime gangs are using carbon emissions trading schemes as fronts for money-laundering,experts warned on Friday. The experts who attended a meeting of the Asia Pacific Money Laundering Group (APG) said crime syndicates are resorting to new methods to hide their illegal proceeds.

One "issue that we've looked at closely is money laundering associated with carbon emissions trading schemes", APG executive secretary Gordon Hook told a news conference after the five-day meeting.

Hook did not elaborate on how crime syndicates were using carbon emissions trading schemes to launder money.

Emissions trading schemes place a limit on the amount of greenhouse gas pollution which companies can produce, forcing heavy polluters to buy credits from companies that pollute less — thereby creating financial incentives to fight global warming.

John Harrison, a security analyst at Singapore's S. Rajaratnam School of International Studies, said that the carbon emissions trading market is relatively new and crime gangs are taking advantage of loopholes in regulation. "They will use new markets to try and launder their money, and particularly if these new markets are not well regulated yet," he said.

APG is an international organisation that is closely affiliated with the Paris-based Financial Action Task Force.

Hook said the region's money-laundering activities had wider, international connections.

"More and more money laundering and terrorist financing we are seeing are in reality transnational crimes so the web of international connections is extremely important," he said.

APG co-chairman Tony Negus, who is also the commissioner of the Australian Federal Police, said the ease of movement and communications have made the fight against organised crime more difficult.

"These days syndicates move across jurisdictions and across the world with ease with increased travel and increased electronic transfers," he said.

Wall Street Is Laundering Drug Money and Getting Away with It

Wall Street has been caught laundering massive amounts of drug money. So why isn't anybody being punished?
By Zach Carter, AlterNet
July 16, 2010

Too-big-to-fail is a much bigger problem than you thought. We've all read damning accounts of the government saving banks from their risky subprime bets, but it turns out that the Wall Street privilege problem is far more deeply ingrained in the U.S. legal system than the simple bailouts witnessed in 2008. America's largest banks can engage in flagrantly criminal activity on a massive scale and emerge almost completely unscathed. The latest sickening example comes from Wachovia Bank: Accused of laundering $380 billion in Mexican drug cartel money, the financial behemoth is expected to emerge with nothing more than a slap on the wrist thanks to an official government policy which protects megabanks from criminal charges.

Bloomberg's Michael Smith has penned a devastating expose detailing Wachovia's drug-money operations and the government's twisted response. The bank was moving money behind literally tons of cocaine from violent drug cartels. It wasn't an accident. Internal whistleblowers at Wachovia warned that the bank was laundering drug money, higher-ups at the bank actively looked the other way in order to score bigger profits, and the U.S. government is about to let everyone involved get off scott free. The bank will not be indicted, because it is official government policy not to prosecute megabanks. From Smith's story:

No big U.S. bank . . . has ever been indicted for violating the Bank Secrecy Act or any other federal law. Instead, the Justice Department settles criminal charges by using deferred-prosecution agreements, in which a bank pays a fine and promises not to break the law again . . . . Large banks are protected from indictments by a variant of the too-big-to-fail theory. Indicting a big bank could trigger a mad dash by investors to dump shares and cause panic in financial markets.

Wachovia was acquired by Wells Fargo in late 2008. The bank's penalty for laundering over $380 billion in drug money is going to be a promise not to ever do it again, and a $160 million fine. The fine is so small that Wachovia will almost certainly turn a profit on its drug financing business after legal costs and penalties are taken into account.

International authorities know the banker-drug-dealer connection goes well beyond Wachovia, but governments aren't doing anything about it. A 2009 report by the United Nations Office on Drugs and Crime found that most rules to prevent drug money laundering through banks are being violated. From the report:

"At a time of major bank failures, money doesn't smell, bankers seem to believe. Honest citizens, struggling in a time of economic hardship, wonder why the proceeds of crime – turned into ostentatious real estate, cars, boats and planes – are not seized."

In late 2009, the head of that U.N. office, Antonio Maria Costa, told the press that much interbank lending—short-term loans banks make to each other—was being supported by drug money. As financial markets froze up in 2007 and 2008, banks turned to drug cartels for cash. Without that drug money, many major banks might not have survived.

This scenario is several steps beyond what most of us think about when we debate too-big-to-fail. The government isn't shielding Wachovia from losses on risky bets in the capital markets casinos— it's shielding the bank from the prosecution of outright criminal behavior. The drug money business did not pose risks to the financial system, and Wachovia wasn't losing money on it. Wachovia is simply being shielded from what ought to be the ordinary functioning of the justice system.

Think about what would happen if you or I were accused of laundering $380 billion in drug money. We could not simply settle the allegations out of court in exchange for an apology and a fine. We'd spend the rest of our lives in jail for financing a ruthless, bloody and illegal business. About 22,000 people have been killed in the Mexican drug trade since 2006, and the drug trade itself can't happen without extensive money laundering operations. Moving the money is one of the most difficult and critical elements of any criminal enterprise—without ways to convert crooked cash into seemingly innocuous funds, crooks simply can't operate. Wachovia was doing top-level dirty work for drug dealers.

On the streets of American cities, the mere possession of these drugs can land you with a multi-year prison sentence. But financing multi-billion-dollar drug empires? Don't do it again, pretty please.

Too-big-to-fail isn't just a matter of systemic risk and mathematical models gone haywire, It's about the basic functioning of our democracy. You cannot have a functional democracy in which an entire privileged class of bankers can get away with anything—and if you can get away with laundering hundreds of billions of dollars in drug money, there's not much you can't get away with.

Yesterday, Congress passed a decent Wall Street reform bill, but that legislation will not end this criminal imbalance. If the bill will really end too-big-to-fail, the Justice Department could immediately end its special immunity policies for large financial institutions. That isn't going to happen. The public deserves tougher prosecutors, but we also need further legislation to break up the megabanks so that they can't use their economic clout to bully everyone in Washington.