PictureRussel Wasendorf, Sr.
Russell Wasendorf Sr. is the CEO of Peregrine Financial Group, a major futures trading company. He recently confessed in a suicide note that he embezzled millions from clients for nearly 20 years. His suicide attempt was prevented by Cedar Falls police, who noticed his car had a hose running from its tailpipe to the interior.

While in the hospital, Wasendorf was arrested and charged with lying to regulators. He will likely face additional charges with the potential of a long prison sentence.

Wasendorf's confession/suicide note was released by federal authorities and has been published in multiple newspapers. It gives valuable insight into what drives a wealthy person to crime. Here are some highlights: 
  • "I was forced into a difficult decision: Should I go out of business or cheat?"
  • "I guess my ego was too big to admit failure. So I cheated."
  • "With careful concealment and blunt authority I was able to hide my fraud from others."
  • "If anyone questioned my authority I would simply point out that I was the sole shareholder."

We can all relate to the temptation to cheat when the chips are down. But few of us can relate to the pressure of thousands of people looking to you for help. Additionally, few of us work in an industry that worships greed. When combined, no wonder so many crimes are committed by executives in the financial services industry!

We miss the lesson of this crime if we only blame Wasendorf. Yes, he failed to follow regulations, and should have been arrested and forced out of business decades ago. But what is really going on? What is the bigger picture?

The overall problem is greed, especially in the financial services sector. We must ask ourselves: what value is being added by the financial services industry? Occasionally they help new companies raise money. They give us a safe place to store our money, and they make it easier to buy and sell things. But what value is provided by short-selling, futures, options, derivatives, or program trading?

While most financial transactions are complicated, they can all be subjected to a simple value-to-society test: Will the world be a better place afterwards? With most financial transactions, someone benefits from another person's misery. So, most financial transactions do not pass the value-to-society test.

In an industry driven by greed, the issue of value added to society never rises to the surface. Instead, it is ignored in the quest to make a buck at someone else's expense. This is why we need to redesign the entire financial services industry. We need to eliminate all transactions that basically rely on someone winning at someone else's expense.

The other problem underlying the Wasendorf case is accountability: most CEOs are not held sufficiently accountable to society. So, they let greed guide their decisions, and everyone else suffers. This is an easy explanation for how CEO compensation has continued to climb into the stratosphere while everyone else's pay declines. This is why we need to redesign corporate law so that CEOs are once again held accountable to society.

For details on how to reform the financial services industry and make CEOs more accountable to society, read Deep Economics, Part 5.

 
Egypt's revolution of 2011 seemed like a success. Mubarak resigned, parliament was disbanded, the constitution was suspended, and free elections were scheduled. All of this was accomplished while the military exercised considerable constraint, thus avoiding widespread killing. The whole world seemed to breathe a deep sigh of relief.

But Egypt's revolution had a critical flaw: It only addressed three branches of government: executive, legislative, and military. The judicial branch was ignored, and now Egypt's revolution is paying a severe price.
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Supreme Constitutional Court of Egypt
Over the past year much has surfaced about Egypt's armed forces. They are quite independent from the executive branch, and its top officers are among the nation's wealthiest individuals. The military operates massive civilian businesses, including roads and housing construction, consumer goods manufacturing and distribution, resorts, and vast tracts of real estate. Most of the military's financial statements, along with its officers' incomes, are tightly held secrets. Some experts say it controls as much as forty percent of Egypt's economy. Indeed, Mubarak began accumulating his vast wealth, estimated in the tens of billions, as an officer in the air force. Without a doubt, the military is a central force in Egypt.

The world is just now realizing, however, that Egypt's judicial branch, headed by its Supreme Constitutional Court (SCC), is a critical fourth branch. It has played an essential role in supporting Egypt's wealthy few all along the way. The SCC is an independent and autonomous branch of government. Its decisions are final and become the law of the land. The SCC has its own budget which is not reviewed by any other branch. Its seven judges serve until the age of 65, and cannot be impeached for any reason whatsoever.

Recent trouble signs emerged when the SCC's president (akin to the Chief Justice of the Supreme Court in the US) assumed the lead role in governing the parliamentary and presidential elections. Past members of the ruling elite were favored, and popular candidates were forced to vie for limited openings. Massive protests were waged, and the SCC relented somewhat. But most of their rulings stood, and many popular candidates were squeezed out or even disqualified outright. 

Most citizens regarded the final presidential election between Morsi and Shafiq as highly unsatisfying. Shafiq was a top member of the air force, and Morsi represented conservative Islamists from the Muslim Brotherhood. Completely missing from the final election was Egypt's highly popular secular voice. Indeed, Egypt's revolution was primarily driven by secularism, not a bias toward Islamic rule, and certainly not by a desire to return power to the old regime! In the end, Egypt's final presidential election ballot was a distortion created in large part by the SCC.

Two days before the final election, the SCC realized their strategy would likely backfire, and the Muslim Brotherhood would win the election. To avoid complete disaster, the SCC shocked the world by dissolving the popularly elected Egyptian parliament––a parliament that was elected in a free election process managed by them! Further, they reallocated significant executive and legislative powers to the military, leaving the election all but irrelevant.

The underlying, untold story from Egypt is this: The judicial system will use its legal power to support the wealthy few at any cost.

The lesson for those citizens who want to reduce income disparity here in the US: don't underestimate the power and willingness of our Supreme Court to do the same thing!

FDR launched the New Deal back in 1933 in response to the widespread income disparity that ultimately created the Great Depression. His New Deal was working, which meant that income disparity was declining. In a desperate effort to protect the interests of the wealthy few, our Supreme Court declared the New Deal unconstitutional. In retaliation, FDR held a famous fireside chat and presented his "court-packing" plan. All of a sudden the Court's viability was at stake. The Court immediately relented, and approved the New Deal in what was called "the switch in time that saved nine."

Or, take the Court's recent Citizens United or Wall-Mart decisions. See the pattern? These, and many similar Court rulings intentionally help the wealthy few extract a grossly disproportionate share of wealth from our economy at the expense of everyone else.

The most recent and significant protest in the US against economic inequality, the Occupy movement, was shut down by the courts. Even though mayors issued the actual orders to close the camps and obstruct constitutional rights to peaceful assembly, they correctly assumed the courts would support them.

Judges are political beings, just like anyone else. They are biased members of the political process. The notion that judges can remain objective and impartial has been proven wrong, again and again. Until we make the judicial branch, like every other branch, accountable to the people, the courts will continue to support the wealthy few and undermine any efforts to establish a truly healthy economy. 

For a comprehensive set of recommendations on how to make the judicial branch accountable, read Deep Economics, Part 5.