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Oh really?

We now know that Kevin Spacey didn't just allegedly assault a boy (adolescent, and well under the age of consent) many years ago -- he was also very sexually aggressive recently including during most of the work for Netflix on "House of Cards".

In fact this isn't just harassment being alleged -- it includes assault.

What's additionally been alleged is that almost-literally everyone in the crew knew damn well this crap was going on.

So here's the problem: This sort of crap doesn't continue for that length of time over that many people without the parent company turning a blind eye to it -- at least.

This appears to be true for basically every other "Tinsel Town" company and production group as well.

If you're a Netflix subscriber you're paying so stars can sexually assault people.  Congratulations.  Make sure you pat yourself on the back each and every month as you fund these perverted, outrageous acts.

Go to the movies?  Same deal.

Rent a movie?  Same deal.

Have a PRIME subscription, which includes video streaming?  Same deal.

You want to know why this happens in an alleged "first world", "developed" nation?

It's because we the people won't demand that our government go after lawbreakers and those who allow and pay for toxic cultures like this, especially large corporations, and we continue to spend money with the firms that fund and either tacitly ignore -- at minimum -- these actions.

Why is Wells Fargo still in business?  Not only did they get caught signing up people for accounts they never requested (that's fraud and illegal) they also got caught signing people up for expensive, unwanted and unnecessary "force-placed" car insurance on auto loans which is also fraud and illegal.  I remind you that Wells also was prominently featured in the "liar loan" debacle in the mid-2000s that led to the housing crash.  Yet not one person has been indicted for any of it nor has the company been indicted.  Worse, Wells Fargo still has customers!

We all claim to be outraged about Weinstein but the fact is that his conduct goes back decades.  If you remember this isn't exactly new or limited to him either -- how about the Michael Jackson allegations?  Where was the prosecution of the corporate enablers of that little game, eh?  Have any of those awards been rescinded and "stars" removed?  Well yes, in that instance there was no "admission of guilt" but there were plenty of pay-offs just as with Weinstein and apparently in Weinstein's case those were "perfectly ok" under his contract, so long as he covered the company's expense in paying same!

That's ridiculously brazen, by the way, because you can't contract to do an illegal thing; any such contract is void.  You say there's no criminal charge in there eh?  How about conspiracy to violate women's civil rights by agreeing in advance to paper over any such violations with payoffs.

But.... statute of limitations.  That's exactly how the game is played and I understand it.  The fact remains that as consumers we hold the ultimate whip hand in this regard in that we cannot be compelled to fund these jackasses nor their advertisers.  But we do, and we do it on purpose.  We consent, in short.

Never mind that the statute of limitations doesn't start running until the conduct stops.  If you're engaged in a continuing pattern of conduct (say, by writing contracts shielding someone from responsibility) then there remains a conspiracy charge available right up until the Statute of Limitations runs beyond when the contract's term ends.

Go down the list.  Disney (major studio), Sony Pictures (ditto), Fox News (where do I start?) and more.  But then again how about all the health care firms?  Sherman Act?  What's that?  Robinson-Patman?  What's with that -- that law doesn't exist, nor does Sherman and Clayton, right?  Apparently not if you're a big corporation, despite the fact that you can google up "15 USC Chapter 1" and start reading.

How about US cellular carriers that explicitly blackball "enhanced services" on your phone if you don't buy it from them.  Tied sale tactics intended to reduce competition are illegal under US Anti-Trust law.  AT&T does this every day, as does Verizon.  Where are the prosecutions?

We can be outraged about Hillary and the DNC if we'd like, but I find it particularly amusing that Trump is pissed off about that, because it's one of the few instances where what they did isn't illegal!  You may not know this but Presidential primaries are called preference primaries.  That's right -- you're expressing a preference.  The party is under no general legal obligation to play fair or even honor the results!  If any such obligation exists it is only under the general laws related to fraud, but there's a problem with such a claim in that you have no cognizant financial injury from them screwing you, so yeah, you might win -- an award of $0.00.  That's worth it (not!)

Should we change those contests and stop calling them votes?  Probably, but does the word vote confer a binding obligation to follow the results?  Nope; there are myriad other examples where it does not.  Municipal referendum anyone?  Absent a specific statute requiring that the electorate's will be followed.... such a duty simply doesn't exist.

We live in a world where Spamazon can play monopolist games with cross-subsidization which the press recognizes daily as having the explicit and intended outcome of destroying competitors (and I remind you 15 USC Chapter 1 only requires the attempt to monopolize for it to be a felony; you need not succeed or involve other parties!) and yet there is not one peep out of the Department of Justice or the Federal Trade Commission, along with 50 state AG offices.  Zero!  In fact the states are falling all over themselves to hand billions in incentives to the company instead.  Who loses from this?  You do, both in a higher tax rate charged to you (to give to them) and in the lost jobs and economic damage as, in the words of CNBC every single day, some other firm gets "Amazoned."

At the same time you have a medical system that operates as a raw extortion racket, producing "bills" that are explicit threats to charge you 300, 400, 500 or even 1,000% more for some form of medical care if you don't buy some particular "insurance" policy.

That's exactly what the Mob does when they come around and collect protection money: "Gee, that's a very nice business you have there.  It would be a shame if something happened to it."  CHA-CHING!  This conduct costs every American family a middle-class house payment (about $1,100) each and every month!

This is just about "some" businesses, right?  Well, no, it's all over the government too.  Guess what -- there are now allegations that essentially the entire Illinois State Government operates on sexual harassment along with paid sex for access.  

Don't live in Illinois, you say?  How about Florida Same deal here, it appears.  Anyone want odds on the other 48?

So cry me a river, America, until the day comes that you start with the several trillion dollars stolen from you every single year in the medical scam along with the "big company" scams and schemes that extract even more from you through various anti-competitive and declared illegal acts.

Never mind that there should be nobody left to go to the movies, Netfux should immediately lose 95% of its subscriber base (and be a zero), so should Amazon and Wells Fargo, for starters.  Oh, that's not an exhaustive list either; there are literally hundreds of other firms to which this should apply.

As long as you keep handing over money to these firms and individuals by intentionally and consensually buying "Prime" memberships, ordering products and services from these firms, keeping bank accounts at the big banks such as Wells and paying to see movies whether on Netfux or otherwise, never mind consenting to the medical scam by buying bogus "health insurance" and allowing politicians to continue to force you into Obamacare's scheme it is clear that you simply don't give a damn, America -- and since you don't why should any of these individuals and companies stop screwing people at large, whether in the wallet or literally -- never mind the hosing going on in the government with not just your wallet but quite-literally in and up various persons' bodily cavities.

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2017-10-30 10:23 by Karl Denninger
in Corruption , 567 references
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This is an interesting article to read; yes, it comes from someone who is well-known as Democrat, but the breadth of the charges leveled is quite breath-taking -- and if anything, in my view, understates the problem.

There is a widespread sense of powerlessness, both in our economic and political life. We seem no longer to control our own destinies. If we don’t like our Internet company or our cable TV, we either have no place to turn, or the alternative is no better. Monopoly corporations are the primary reason that drug prices in the United States are higher than anywhere else in the world. Whether we like it or not, a company like Equifax can gather data about us, and then blithely take insufficient cybersecurity measures, exposing half the country to the risk of identity fraud, and then charge us for but a partial restoration of the security that we had before a major breach.

Some century and a quarter ago, America was, in some ways, at a similar juncture: Political and economic power seemed concentrated in a few hands, in ways that were inconsonant with our democratic ideals. We passed the Sherman Anti-Trust Act in 1890, followed in the next quarter-century by other legislation trying to ensure competition in the market place. Importantly, these laws were based on the belief that concentrations of economic power inevitably would lead to concentrations in political power.

Read this carefully; it's accurate.  The Sherman Act, followed by Clayton (to close loopholes left under Sherman) and Robinson-Patman (which codified that buyers of like kind and quantity could not be discriminated against for physical goods) followed.

But now continue, which I note is an unbroken quote (in other words, I'm not skipping forward in Stiglitz's piece) and you'll find something deeply troubling:

Antitrust policy was not based on a finely honed economic analysis, resting on concurrent advances in economics.

What?  Policy is not law.  You can codify policy into law but until you do law wins.

It was really about the nature of our society and democracy. But somehow, in the ensuing decades, antitrust was taken over by an army of economists and lawyers. They redefined and narrowed the scope, to focus on consumer harm, with strong presumptions that the market was in fact naturally competitive, placing the burden of proof on those who contended otherwise.


Let me point out how it didn't happen.  It didn't happen by actually diluting or removing the law.  May I quote just the first two sections as they stand today, which are for all intents and purposes exactly as they stood 100+ years ago?

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.


Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.

That doesn't look very diluted to me.  In point of fact it's quite clear that you don't have to succeed nor do prices have to go higher in order to get charged; you need only attempt to monopolize, or attempt to restrain tradeand you've committed a felony.  There is no necessity of proving "consumer harm" in that statute whatsoever.

There has been no "dilution" in the law in this regard at all.  It says what it said in 1890; do this and go to prison.

On this basis, it became almost impossible to successfully bring a predatory pricing case: Any attempt to raise prices above costs would instantaneously be met by an onslaught of new firm entry (so it was claimed). Chicago economists would argue—with little backing in either theory or evidence—that one shouldn’t even worry about monopoly: In an innovative economy, monopoly power would only be temporary, and the ensuing contest to become the monopolist maximized innovation and consumer welfare.

Who cares what Chicago economists argue?  Economic theories do not negate law.  If said Chicago school economists had managed to re-write the law Stiglitz would have a point, but that's not what happened.

But if we begin with the obvious, opposite hypothesis—that what we see in our daily life is true, that our economy is marked in industry after industry by large concentrations of market power—then we can begin to simultaneously understand much of what is going on. 

Those concentrations of market power occur because the law is violated on a daily, wanton and intentional basis and what the so-called Chicago-school economists have done is "convince" thousands of prosecutors and investigators at both the State and Federal level to ignore the law.

In a political system where justice actually exists that act is commonly known as obstruction of justice and that, my friends, is supposed to be charged as a separate criminal felony!

Note that while an economist (or anyone else) has the right to advocate that a law is wrong and thus should be changed until it is no prosecutor has the right to ignore said law.  The law either stands as written or it must be amended.  The reason we have a justice system is because the law is supposed to apply equally to everyone without fear or favor; it is in fact upon this premise that justice rests, and upon which you, I and everyone else are supposed to conduct our lives.

In fact the willful and intentional acts of refusal to prosecute constitute a willful and intentional violation of every one of these people's oath of office, an act for which they must be removed from their office and replaced, and to the extent money is involved (as is the case with all "economists" since that's their job) we are talking obstruction of justice as well.

Let me remind you again that anti-trust law in this regard does not require a showing that actual price harm to consumers take place.  The above quote is the entirety of the first two sections of said law; the mere attempt to monopolize or restrain trade is illegal irrespective of whether you succeed.  Likewise whether or not someone can prove price injury does not matter either; it's still illegal.

The reason the law is written this way is specifically to prevent the defenses and dilutions that Stiglitz argues have "polluted" anti-trust.  The authors were well-aware that firms like Standard Oil (or Amazon, Google and Merck for that matter) would make the argument that "business efficiency" is increased by monopoly control over chains of supply and similar things, and that proving injury, especially at a criminal standard of proof, would be extremely difficult or impossible.  The reason for this is simple: Doing so would require being able to prove what would have happened but for the monopoly or restraint of trade, and since that second event never occurred said proof is virtually impossible to come by.

Authors of statutes as well as scientists generally are well-aware that proving a negative is almost impossible to do in the general case, never mind proving what would have happened but for some complex series of actions by some party.  In a civil action the preponderance of evidence (in other words, "more likely than not") is sufficient to win but anti-trust is a criminal law and the standard of proof there is "beyond a reasonable doubt."  You simply can never get there if you must prove what would have happened but for the monopoly or restraint of trade.

Amazon, the entire health system in this country (too many firms to list), Google, Facebook and others have all simply ignored this body of law because nobody has or will bring charges.  It's not that the law doesn't exist and doesn't make attempting to establish and maintain monopoly control a felony -- it does, and it's more than adequate to put a stop to this crap across the board and put all of these executives and more in prison for decades.

Stiglitz argues we need to "rewrite" or "revamp" the law in order to address these issues, which he correctly identifies.

He's dead wrong on his prescription: We need to enforce the already-existing laws, which have not been diluted, and if the law enforcement community from the local prosecutor (I remind you state law typically has an anti-trust section that reads almost-identically to federal code) all the way on up to our federal Attorney General will not do so, irrespective of the reason, then they and everyone supporting their refusal must be replaced by whatever means are necessary.

Such willful refusal to enforce the law is even worse than you'd think: It's entirely due to money.  The prosecutors and others in the "justice" system are implicitly and explicitly being bribed in that they know that if the law is enforced against health care and insurance firms alone, say much less Amazon, Google and Facebook the stock market will instantly crash by half or more because it is only through these unlawful schemes that the extraction of money these firms have used to boost their stock prices and steal from consumers is possible.

Let me remind you that in the health care space alone every single American family has a middle-class house payment stolen from them each and every month through these practices.

The more-difficult to identify harm in specific terms with regard to companies like Amazon, Facebook and Google, all of which also need to be investigated and brought to justice, is far harder to quantify.  The use of offshoring intellectual property that is actually developed and used here (to evade taxes), the offshoring of labor (again, to evade not only labor cost but taxes) when the fruits of same are used here and similar all serve not only to destroy jobs by the millions but at the same evade paying taxes on those employee wages and corporate profits which in fact are generated by activity here.

Indeed every single company with an "offshore" call center that takes calls from United States customers is evading both labor costs and employment taxes that would otherwise be generated by economic activity in the United States while at the same time destroying United States jobs.

It is for this very reason -- that the harm can often be difficult to quantify and prove in dollar terms that anti-trust law is written the way it is.  It makes specifically illegal at a felony level any attempt to restrain trade of monopolize commerce irrespective of whether you succeed in doing so or whether someone can quantify and prove, at a criminal standard, the amount of economic harm or even whether it occurred.

The people of this nation are able to remove and replace the political appointees and government employees that refuse to enforce this 100+ year old body of felony criminal law through peaceful political action -- if we so insist.  If it becomes necessary to hold a general strike to do so, or to protest en-masse and make every one of their lives and that of their families a living hell until they do their jobs then so be it.  If peaceful remedies fail then this nation is finished as a representative republic, and what follows will not be pleasant.  But until and unless such peaceful and legal remedies are attempted there's simply no reason to believe they won't work.

But this much is certain: Unless we insist as a body politic that the economic harm done to us is equally damaging and as unacceptable as criminal assault, robbery and other forms of criminal butchery, and we refuse to allow it to continue unanswered then why would any CEO fear justice under the law when we continue to sit back and let them get away with it despite laws specifically criminalizing their conduct?

And by the way, if you think the impact of prosecutors ignoring the law is simply a money issue, it's not.  Why do you think Kevin Spacey thought he could get away with sexually assaulting an under age boy (that's commonly called pedophilia) -- he apparently has all but admitted to the assault although he claims not to remember the specifics.  Why do you think Weinstein thought he could get away with what he did for as long as he did?  Why do we have extreme levels of despair in this nation related to economic prospects by so many, which in turn leads some of those people to addiction and death, all for the profit of the pharma and medical industry?

Why do you think all this crap goes on folks?

It continues on a daily basis specifically because we as a people in the United States refuse to demand that the law be enforced against rich and powerful individuals and corporations just as it is against you and I and if prosecutors fail to do so we as citizens refuse to enforce that demand by whatever means are necessary.

Your sons and daughters are assaulted by people like Weinstein, the hospital up the road has twenty-five times the infection rate of the Surgery Center of Oklahoma (responsible, in large part, for 200,000 avoidable deaths a year) and your nephew dies from opiod overdose for the exact same reason you get screwed out of that house payment each and every month.

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2017-10-29 12:54 by Karl Denninger
in Corruption , 326 references
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Gee, it's not just SCAmazon, is it?

I don't know why I bother, to tell you the truth.  There is simply zero outrage over what goes on in corporate America these days, no matter the facts.

And let's remind of those facts, including that every American family has a middle-class house payment stolen from them every single month.

I just got my "Obamacare" renewal "offer."  The gross increase for their generous offer is +24%.  The "net" increase cannot be determined because they can't yet tell me what the APTC will be.  If it was to be the same the "net" increase would be 19,000%.

No, I didn't mis-type that.

I think it's rather obvious I won't be "accepting" their "generous" offer.  In a few days I will have the "new" APTC amount available, which I remind you is only available to me because I have decided that I'm not going to work any more for any material amount of money, will live on a much smaller income, and this of course means that I don't buy a large percentage of both goods and services (which by the way included quite a few fancy things over the years) that I used to buy.

Yes, I take the APTC from all of you who still go to work every day to make as much money as you can and thus pay all those taxes.  It's several thousand dollars a year and I make no apology for it. In fact I put my middle finger up toward you daily for you are the ones who could choose to raise hell and withdraw your consent (exactly as I did), and if producing Americans did in concert it would force peaceful political change and an end to these scams.  Since you choose not to I will instead take your money and smile in wry bemusement as you mewl out yet another repetition of "Please sir, just the tip this time....." toward Mordor on the Potomac, smug in the knowledge that just as you didn't get "just the tip" last time you won't this time either.

My decision to peacefully withdraw consent and active participation in engaging in as much revenue-making opportunity as I can reasonably muster has probably helped put a few dozen people out of work up and down various supply chains, as I used to be involved in a fair number of pretty-expensive discretionary ways to spend time, none of which I can afford to engage in today on my much-smaller income.  I don't give a ****.  I will intentionally put more people out of work when I downsize my life further which begins in earnest in the next few months and will likely be completed sometime next year.  The planning for that is already in progress.

This is how much I care about those "side effects" of my decision:


This would be roughly the every-eth year since 1998 when I sold MCSNet that my "health premium" has attempted to be jacked by double-digit percentage rates, all "on the come" that something horrible might medically happen to me at some point in that year.  I remind you that so-called "health insurance" is not actually insurance at all, since actual insurance is only paid for (in premiums) until the bad thing happens; then the insurance company pays you.  With so-called "health insurance" you must continue to pay premiums even after the bad thing happens or they stop paying for the attempts to fix the event that already occurred.

The insurance companies, of course, all claim that these insanely-ramping price of their "service" is because of "great medical innovations."  This, despite the fact that Americans are not enjoying longer and longer lives, nor healthier ones.  I'm sure that Aetna's stock price, along with dozens of others in the same and related fields (all of which look quite similar) reflects that they're spending far more on actual care due to those "innovations" and less on padding pockets up and down the line:

By the way, if you scroll out on a 20 year chart you'll find that in 1998 when I sold my company this firm had a stock price of $8, more or less. This of course means that it has gone up 22 times since then.

A few years ago I decided I wasn't going to participate in this scam any more.  Instead of padding everyone's pockets and consenting to their extortion while trying to stay ahead of it (which is impossible over time with any geometric series, by the way) I figured out how to pay zero instead (or damn close to it).  When Obamacare was passed I decided to do exactly that, and I will continue to do so.  Since the lawful means of paying nearly zero involve intentionally cutting my income to quite close to zero (especially in comparison to what it used to be!) that in turns means that all the places I used to spend money at and all the industries I used to support with my consumer spending can fuck off and die in a fire.

If you've ever gotten a bill from a hospital or other medical provider and are "covered" by "health insurance" (whether from where you work or individually) it probably looks something like this:

Note the cute line on the bottom: "Blue Cross discounts are negotiated with hospitals, doctors and other health care providers which saves you money."

Really?  I read this differently:

Your purchase of "health insurance" is the product of extortion and an unlawful collusive practice under both State and Federal Law between our company and the medical providers on this invoice.   Since you only need one procedure (since you're one person) the charging of someone roughly three times as much for the exact same product or service can only be explained by collusion which serves to force you to buy the second service ("insurance") which you would probably otherwise not buy, by threatening you with bankrupcy you if you refuse.

On the law enforcement side there has not been one Attorney General (state or federal) that has been willing to bring such a charge despite this specific practice of "negotiated prices" being taken to the US Supreme Court and the colluding parties in the medical field LOST.

In other words medical and "health insurance" companies tried to claim exemption from Anti-Trust (under McCarran-Ferguson) and had it shot down by the highest court in the land -- in 1979 (Group Life and Health Ins. Co. .v. Royal Drug, 440 US 205). The finding was:

Held: The Pharmacy Agreements are not the "business of insurance" within the meaning of § 2(b). Pp. 440 U. S. 211-233.

(a) Section 2(b) exempts the "business of insurance," not the "business of insurers." Pp. 440 U. S. 210-211.

(b) A primary element of an insurance contract is the underwriting or spreading of risk, SEC v. Variable Annuity Life Ins. Co., 359 U. S. 65, but that element is not involved in the Pharmacy Agreements, which are merely arrangements for the purchase of goods and services by Blue Shield, enabling it to effect cost savings. Pp. 440 U. S. 211-215.

In plain English the firms made exactly the argument expressed in the bill above as being a legal practice since they claimed to be exempt from anti-trust law despite admitting to both collusion and price-fixing.

The Supreme Court said "nope" and as a result, after the case got to the highest court in the land in a decision that binds all other courts and judicial systems below it they lost.

Yet despite that here we are, in 2017 almost 40 years later and that very same crap still goes on every single day without a single person being indicted, prosecuted and imprisoned for doing so, despite the fact that 100+ year old law declares that conduct to be a felony.

This garbage bilks every American family out of a middle-class house payment every single month.  The amount stolen from the American people via these tactics amount to well over $2 trillion a year.

And now we have one of these insurance companies that a drug store chain wants to buy (at their current crazily inflated stock price) so as to privilege itself further at your expense.

I guess 40 years of intentional indifference by prosecutors will do that sort of thing.  After all if you could rob a bank every day for 40 years, openly, notoriously, brandishing your gun and threatening to kill anyone who opposed you, and no cops ever showed up, nobody ever laid a charge against you and there was always more money in the till every single day for you to rob you might get the idea after 40 years or so that just taking some of the cash you stole and buying the bank would make the act a bit easier!

I mean, why bother strolling up to the teller window with the gun, right?  Now you own the building in which the till is located and can just raid at your convenience whenever the beer in your fridge runs out.

If you expect me to willingly cooperate with producing economic output so this sort of crap can go on day after day for more than 40 years despite the highest court in the land calling bull**** on it you are missing more than a few cans from your mental six-pack.

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2017-10-27 20:55 by Karl Denninger
in Corruption , 5642 references
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Refer to the table in this article -- note how Amazon is turning nearly a negative 20% margin on goods sold not including SG&A (that is, their sales and administrative expenses, such as the buildings and their employees) but only counting the cost of goods sold and their fulfillment (shipping and warehousing) expense.

I wish to note that generally cross-subsidizing is legal provided it's not done for an unlawful purpose.

For example it is legal to sell something as a "loss leader" to get people into your store in the hope that they will buy a profitable product or service (which makes enough profit to cover the cost of both), whether that other sale takes place at the same time or somewhere down the road.  There's nothing illegal about using a "teaser" product to get people to shop with you, in short.

However, if the purpose of said intentional selling at a loss is to destroy competitors in your market and you have the market power to do so that's against the law under the Sherman Act.  In fact, it's a felony.

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court.

Note that you not need to do this between two or more companies -- it is entirely illegal to do so within the walls of one firm alone.

Corporations exist for one purpose alone -- to make a profit.  This does not mean that every firm succeeds in making a profit, of course.  In point of fact 8 out of 10 new firms fail within five years as they are unable to meet the essential test of "business" -- turning a profit.

But look at this, which is an extension of the table I created earlier -- it goes back more than five years and is taken from the SEC's filings made by Amazon.

DateSalesCOGSSales/Cog %FulfillmentNet% Profit

This is Amazon's sales of goods (ed: Before attacking this table, read the italicized portion at the bottom.)

Their top-line margin (simply sales divided by cost-of-goods sold) has gone from 12.46% to 4.42%, a collapse of approximately 65%, over that period of time.  At the same time their operating loss not including general and administrative costs, nor marketing -- that is, just the cost of the product and "fulfillment", has gone from -2.46% to -18.08%, an explosion of more than 730%.

The argument could be, of course, that there are "other than COGS" in that number.  Well, ok, but read on below and then keep trying to find a scenario under which that claim fits for material components of that figure.

You see, what's most-interesting in the table is that in approximately the third quarter of 2016 the company basically gave up and surrendered, essentially "throwing a switch", removing 500 basis points of markup over cost in a step function that has no rational explanation among any change in the mix of products and services sold that occurred at the same time.  I have not seen one word out of the analyst community (or the company for that matter) on this.  In fact all the analysts have been "cheering" on the "acceleration" of the firm's prospects and results, with the stock price going from $700 then to $1105 today. Yet it appears that Amazon went from losing 10% on all the goods it sold to 18% or nearly double the loss during that same time period.  The latest escalation in loss during the most-recent quarter is associated with ramping fulfillment expense (up 35% in one quarter against a 16% sales increase) which the firm tried to "dull" by taking another 110 basis points off its "cost" markup!

The company now, it appears, loses approximately one dollar in five whenever someone buys a "thing" from Amazon.

This is not some startup attempting to claw its way into relevance; it is a mature firm that employs tens of thousands of people and yet over the last five years it certainly appears it has been incapable of growing its sales of physical product without losing more and more money on each and every sale.  Instead of finding itself with a near-zero stock price both analysts and the media trumpet how "successful" the firm is at being a retailer!  Thanks in no small part to the fawning that the media and analyst community has served up upon a credulous public and their intentional burying of the truth the stock price has more than quadrupled from roughly $250 in early 2013 to over $1,100 today.

It certainly appears that Amazon has "purchased" their increase in the gross sales of goods by literally giving product away at an ever-increasing loss -- a loss that has now reached nearly 20% across the entirety of nearly thirty billion dollars in goods sold last quarter.

Given the amount of data Amazon has and the utterly-stunning percentage of loss they're taking in that regard I'm willing to bet that a nicely-aimed subpoena would show that the company is well aware that the only way they could continue to grow sales to any material degree is to displace existing retailers by intentionally selling at that ever-increasing loss -- and that this is exactly what they're done.

More to the point there is nothing else Amazon sells to consumers that can possibly make back the $5.2 billion dollars lost last quarter through this practice, so any argument that this tactic amounts to a "loss leader", given more than five years of history, is almost-certainly an easily-proved lie.  Specifically,  subscription services (including Prime membership fees, digital video and music, e-book, etc), many of which are sold to consumers, account for only $2.4 billion in gross receipts last quarter.  Amazon does not break out the cost of those services and they have always refused to itemize them but even allowing for a very large (e.g. 50% or more) margin those services cannot possibly be profitably cross-subsidizing the loss on product sales; there simply isn't enough money received from them to do so.

Therefore the purpose of such an increasing, five+ year ramping change in intentional operating losses in the company's product sales segment, assuming it is as it appears to be, has to be called into question.

The effect of these actions, however, on other companies in the consumer product space is not open to question -- witness the myriad and daily mention of various retail channels and individual retailers being "Amazoned" in the media and on conference calls.  In the latest point of attack which I assume the company will also apply this "strategy" to Amazon is apparently attempting to enter wholesale prescription drug sales.

It is perfectly legal to out-compete other sellers by doing more with less and thus having a lower cost structure in your business.  This in turn allows you charge a lower price and gain market share.  That, in fact, is exactly what innovation and competition (otherwise known as "productivity improvement" in the economic field) is supposed to do.

It is not, however, legal to cross-subsidize the sales of your products with another, disjoint services business within your company so as to allow you to sell products at an intentional loss for the purpose of putting others out of business in an attempt to monopolize sales.

The financials disclose that the funding source for Amazon's practices in general is AWS service sales, a completely disjoint service (from the perspective of the consumer who has no reason to buy or use such a service) that happens to be quite profitable on a free cash-flow basis.

Not one person within a state or the federal government has come after Amazon for this pattern of conduct in inquiry of why they are engaged in behavior that I can find no rational explanation for within the boundaries of lawful and fair competition as disclosed to both the public and regulators by their published financials and operating results.

In fact, the pattern strongly suggests that Jeff Bezos and Amazon are using AWS as a vehicle to intentionally drive competitors out of the market in the sale of goods not by out-competing them in cloud computing services but instead by destroying competing retailers of goods through rapidly-accelerating cross-subsidization and intentionally selling goods at a loss which they know their competitors cannot do.

I remind you again that attempting to monopolize trade is a felony.

Just like the medical scams that are rampant in our country and have resulted in ridiculous ramps in health insurer and drug company stocks over the last few years, all of which are based on collusive behavior that I argue amount to extortion Amazon has been rewarded for the latest display of this behavior with more than $120 being added to the firm's stock price on Friday alone, a roughly 12% increase, and has been rewarded enormously over the last five years for same with a more than 400% increase in the price of their stock.  This has inured personally to the executives of the firm, including most-specifically their CEO, Jeff Bezos who has seen his personal wealth swell by tens of billions of dollars while his company appears to have intentionally sold products at ever-increasing rates of loss and destroyed the jobs of tens if not hundreds of thousands of people along with severely damaging or destroying myriad competing companies in the retail space.

I argue the rampjob in the market in general through the mid 2000s happened because of rank lawlessness, just as I know for a fact it did in 1999 as I was running a firm in that space during the 1990s and saw both many competitors and suppliers present projections and claims that were fanciful fictions peddled not only by the firms themselves but by so-called "analysts" and the "media."  Not long after billions of investor dollars were vaporized in the 2000 crash as those works of fiction were exposed.

Eight years later the market crashed in 2008 again because it appeared the people who were scamming would go bankrupt and some might go to prison -- which, from the available evidence, it certainly appeared should happen.

The market bottomed and turned sharply upward almost to the day that Congress declared the blatantly illegal practice of calling an asset valued at whatever you wanted it to be instead of what someone would pay for it a lawful practice.  In other words, nobody was going to go broke and nobody was going to jail either despite the fact that by then we had proof of those firm's practice of selling to customers things described as "good securities" which their own employees were calling "vomit" in "private" conversations among themselves.  The price of vomit, of course, is actually negative (since you normally would have to pay someone to clean it up!)

We have witnessed an unprecedented ramp in the market over the last few years and of those firms that have risen the most I can point to companies just like this one that have no rational legitimate explanation that I can logically put together for their business decisions and behavior.  All explanations that I can analyze which are plausible in light of the public facts devolve into screwing someone, smug in the knowledge that they won't be investigated and punished for doing so, just as they weren't in 2009 and 2000.

What's worse, every bit of this is happening with the explicit complicity and even active promotion of the media, so-called "analysts" who intentionally ignore imploding margins and treat them like they're "good news" along with our own Government, including the President of the United States.

I hope you like getting screwed without being kissed first.

Editorial note: There have been raised questions about the "Cost of Sales" line and what part of services are in there. Here's the issue with that claim: When it comes to pure services there is no good bought first (in other words, cost of goods is zero because there are no goods.)  Second, AWS is said to be 11% of sales (net-net.)  Third, AWS has its operating expense broken out which are claimed to be $3.4 billion, all-in last quarter.  Fourth, for "other services" note that their cost is in fact broken out (tech & content) and that's a high-margin business, as is AWS.  Note that tech&content + G&A + other + marketing = $9.4 billion. Anyone who doesn't believe nearly all (if not all) of AWS's operating expense is absorbed in that $9.4 billion, along with the rest of the cost of other services that are sold (for which there are no goods purchased), has rocks in their head, given what AWS is (a pure service that consumes a shad-ton of electricity and tech expertise which is quite expensive to hire and feed, .vs. $10/hour warehouse peeps that are not.)  Finally, as  the son of a former CPA (now deceased) who was none-too-shy about his experience in this regard with me, never mind my observations with regard to WaMu's "accounting" in early 2007 in which they were paying dividends out of capitalized interest (an accounting entity that doesn't exist in actual cash, I note) let me simply observe that the art of accounting is that exactly how you silo various expense items is, shall we say, subject to quite a bit of "discretion" provided the amounts all total up at the bottom of the page -- and that such discretion is generally-speaking legal.  In addition and perhaps of greatest importance I note that nobody ever hides good news, which means that if that cost item wasn't nearly all COGS it would be broken out in specific detail so that the "good news" would be apparent and on paper, but if it was broken out in such a fashion and later proved to be a lie there would be criminal sanction associated with doing so.  Thus my commentary about a "well-placed" subpoena up above -- not that I believe we'll ever see one.

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2017-10-26 07:00 by Karl Denninger
in Corruption , 924 references
[Comments enabled]  

The corruption displayed here is literally breathtaking.

There is nothing new about political candidates intentionally lying about their opponents.  There's nothing illegal about it either, generally.  The bar for actionable conduct when it comes to political candidates and the speech directed at them is extraordinarily high, and for good reason -- the voters are the ones expected to sort it all out.

On the other hand there is an absolute bar (under the Hatch Act) for federal employees engaging in any sort of partisan political activity while on the clock or using the resources of the Federal Government. Higher-level employees, including all political appointees, are prohibited from engaging in any partisan political activity, whether on the clock or not.

It is now clear that a large number of FBI employees, including those with direct ties to Mueller who is now serving as a "special counsel", violated that law.  Further, the FBI itself paid for part of the work used to attack the President-elect, an outrageously-illegal and partisan political activity.  Finally, out of the dozens or hundreds of FBI employees who had to be aware of this none blew the whistle publicly.

I remind you that the FBI is the federal law enforcement agency.  Corruption or attempting to steer political outcomes within the FBI cannot be excused under any circumstance.  Such amounts to attempting to subjugate the political process in favor of literal tyranny.

Mueller's connection to all of this is both proximate and supervisory.  President Trump now must fire him for cause; if he does not immediately do so then he is complicit and personally involved as well since the actions of Mueller, Comey and others are no longer a matter of speculation but known fact.

In addition the facts that have developed over the Uranium One deal, as I have previously noted, not only suggest but appear to prove that the FBI covered up the existence of their investigation despite knowing that the transaction was being vetted by government agencies who were required to sign off before it was consummated.

It is now established that the FBI willfully and intentionally did not alert any of the departments involved, nor Congress, that an investigation was under way, despite having evidence of extremely-serious, felony level unlawful actions by foreign national principals involved in said transaction including extortion.  Further, said principals, after consummating the deal, "gave" well over $100 million to the Clinton Foundation, when the State Department headed by Clinton was one of the agencies that had to sign off on said transaction.  While the public information to date does not prove this was a pay-off for the Department looking the other way and the Obama Executive suppressing the FBI's investigation (I remind you that the FBI is part of the Executive under our Constitution) it certainly smells like it, and the willful and intentional suppression of this information for the amount of time involved thus far looks like an attempt to run the Statute of Limitations in a corrupt and intentionally unlawful manner.

Folks, there have been myriad scandals over the Obama years that nobody cares about -- and some of them have gotten people killed.  Eric Holder's Fast-n-Furious is one of the most-notorious, of course, and may I remind you that is also centered in the Department of Justice.  Not one person has ever been prosecuted for any of this.

If there is no longer a rule of law respected in America by the very government charged with enforcing same then The Rule of Law no longer exists for anyone.  All we're left with is the law of the Jungle; he who is willing to steal or even murder simply predicated on the risk of being killed or stolen from in retribution is all that we have left.

Down this road a mere foot from the fork in same lies utter madness no different than what Mexico is dealing with right now when it comes to drug lords and people being hung from freeway overpasses, or the sort of death-dealing gangs found in various third-world hellholes.

This is either stopped here and now, and those involved are brought to justice, all of them, or we descend into that pit from which there is little chance of recovery.

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