They go by different names in different places. The most generic description is the "hoarders and speculators," a term currently in favor as the preferred scapegoats of the disastrous Venezuelan regime. For Stalin, it was the "kulaks." For Hitler, it was the "Jews." For Bernie Sanders, Elizabeth Warren, and others on the current Democratic left, it's the "greedy Wall Street bankers." In economies hobbled by brain-dead socialist policies or by overzealous regulation, they are the people making lots of money doing things that many people don't understand. Most commonly they have found a way to bet on the failure of government coercion to keep people from acting in their own self-interest.
Latest to join the theater is the government of China. China had made it official policy to encourage margin borrowing to drive stock market valuations to unsustainable heights. When that all started to come apart over the summer, this now wasn't just a normal market correction, it was a dissing of the all-knowing and perfect leaders. The New York Times reports on the government's reaction in last Thursday's lead article in the upper right on page A-1, headlined "China's Response To Stock Plunge Rattles Traders." Catching up with the Manhattan Contrarian from two weeks ago, the Times now reports that the Chinese government is responding to the plunging of its stock markets and the onset of an obvious recession (not reflected in official statistics, which are thereby revealed to be fraudulent -- but you already knew that) by rounding up the usual suspects. In this case the usual suspects are stock traders, including those who had the nerve to do no more than to sell securities when the market was declining.
Police officers under the Chinese Ministry of Public Security specializing in economic crimes have joined agents from the nation’s securities regulator on inspections of investment funds and brokerage firms. The authorities are combing records and questioning transactions that appear to profit from or contribute to a falling market, according to employees of investment firms who, like others who spoke anonymously, said they feared reprisals. Police officers have downloaded extensive trading data and asked fund managers why they sold shares when the market was going down, prompting discussions about basic investment strategy. Officers have bluntly told some fund managers to just stop selling.
The all-knowing and perfect leaders seem to have no idea that they will need to have a lot of non-spooked investors and traders around if they ever want their stock market to recover and resume providing capital to businesses. Well, all I can say is, thank God that here in the United States our enlightened authorities actually understand and believe in capitalism and resist the unjustified criminalization of normal market transactions!
Oh, wait a minute. There on the same front page of the same September 9 New York Times, immediately adjacent to the article about China linked above, we have another one headlined "Justice Dept. Sets Its Sights On Executives." This article reports on a memo and subsequent interview with one Sally Yates, Deputy Attorney General in the U.S. Justice Department. Seems that Ms. Yates has just announced a renewed Justice Department initiative to focus its efforts and energies on jailing top executives of Wall Street firms for allegedly "criminal" behavior.
The [Yates] memo is a tacit acknowledgment of criticism that despite securing record fines from major corporations, the Justice Department under President Obama has punished few executives involved in the housing crisis, the financial meltdown and corporate scandals. “Corporations can only commit crimes through flesh-and-blood people,” Sally Q. Yates, the deputy attorney general and the author of the memo, said in an interview on Wednesday. “It’s only fair that the people who are responsible for committing those crimes be held accountable."
The "criticism" referred to would be from the likes of Senator Elizabeth Warren, known for her repeated demands that the government put Wall Street bankers in jail. Of course a small problem here is that they need to come up with some crime that has been committed to justify the jailing. I call that a "small" problem, because the lack of any clearly defined statutory crime to charge has not deterred many prosecutions against large banks for things like participation in the mortgage-backed securities markets, or against individuals for the non-crime of non-insider insider trading. Nor has the lack of a crime to charge prevented dozens of convictions for non-crimes. But then there is the pesky appeal process. And thus the government, for example, continues to press its cert petition in the case of Messrs. Newman and Chiasson for non-insider insider trading, even as many people convicted of that non-crime continue to languish in limbo.
But even as the Justice Department descends further into lawlessness, there is a small piece of good news from the SEC. Just this afternoon, an SEC Administrative Law Judge has dismissed after trial a non-insider insider trading case against a Well Fargo trader named Joseph Ruggieri. (You'll have to wait until tomorrow to find a non-paywalled link.) Ruggieri's alleged "insider trading" consisted of trading on Wells Fargo analyst reports before they were released to the public. How is that even "insider trading" at all? The government argued in the case that the Second Circuit's Newman/Chiasson decision should be ignored (!), or alternatively that Ruggieri's "friendship" with a stock analyst at WF was sufficient to constitute "compensation" to make Ruggieri into an insider.
Really, is this the best that our government can come up with in the way of scapegoats that are supposedly harming our economy? The case was so pitiful that they couldn't even win in front of their own rigged ALJ. Somebody who's paying attention might even get the idea that the economy languishes because of the government's own incompetent policies, and not because of any mythical "hoarders and speculators."