PARIS – Volkswagen CEO “falls on his sword,” reports the Financial Times.

The FT was speaking metaphorically, of course. Martin Winterkorn is German, after all, not Japanese.

A Japanese businessman in a similar circumstance would have his intestines on the floor by now.

An Innocent Crime?

Volkswagen supplies motor vehicles to the world – millions of machines that work at least as well as any other.

We have one of its small diesel pickup trucks at the ranch in Argentina. It serves us well.

Volkswagen employs 600,000 engineers, machinists, accountants, metallurgists… and hundreds of other métiers… all gainfully working in the modern economy.

And judging from its revenues, the company is doing as much to make the world a better place as practically any other enterprise in the world.

Or perhaps not… Yesterday, Mr. Winterkorn resigned, after the company was caught rigging emissions tests.

And VW stock plunged (more on this below in today’s Market Insight). Estimates of the fines, civil settlements, and other penalties the company will have to pay ran into the hundreds of billions of dollars.

What do you have to do to earn this kind of a flogging? How many customers did Volkswagen’s reckless engineering kill? How much money was stolen from buyers by its underhanded marketing techniques? How many women were raped in its showrooms, and how many pets drowned in its dark pools?

What’s this? None of the above?

Apparently, not a single person suffered injury… and not a single pfennig was lost or stolen.

The total measure of harm suffered by the public?

We don’t know. It depends on how harmful “harmful” carbon emissions really are for the environment.

So, Volkswagen’s clever engineers found a way to pass U.S. emissions tests – apparently by disguising unwanted vapors during testing.

Was this illegal?

Probably.

Was it immoral? Did it harm any living thing?

We don’t know.

But it was definitely a bad idea. At the very least, Volkswagen has had to recall half a million cars, at enormous expense. The company is paying the price for its mistake.

A $100-Billion Fraud

Yesterday also brought news of another corporate faux pas…

This time, by one of America’s government-sponsored mortgage giants, Fannie Mae.

The case also involved hiding something. But this time, the result was genuine suffering on behalf of millions of U.S. homeowners.

Fortune magazine reports:

On Monday afternoon, Thomas Lund [one of the highest ranking former officials of Fannie Mae] settled charges brought by the Securities and Exchange Commission back in 2011 that he helped deceive shareholders of Fannie Mae in the run-up to the financial crisis.

The suit claimed that Lund, who was the head of Fannie’s single-family division, helped hide more than $100 billion of subprime exposure from Fannie’s shareholders, allowing it to continue to back more and more risky loans.

Now, here we have a clearer case. Thanks in part to Mr. Lund’s chicanery, the bubble in mortgage finance caught investors unaware. This resulted in losses of at least $8 trillion in the U.S. stock market alone.

Mortgage debt had become a key component of Wall Street collateral. When housing prices fell, many of the big banks were faced with insolvency.

Arguably, in September 2008, this brought the entire financial industry – and the world economy – to the edge of collapse.

Losses in the housing market were colossal and came with great personal suffering. We don’t remember the number. But something like 10 million households found themselves “underwater,” with mortgage debt in excess of the value of their houses.

Millions of people lost their homes when lenders repossessed them.

Remember “jingle mail”?

Underwater homeowners had no choice: They just mailed their house keys back to the mortgage companies. Whole families were living in cheap motels and improvised lodgings.

You’d think Mr. Lund would want to duck. Surely, the SEC – when it ruled this week – would throw the book at him.

But wait. Mr. Lund was in finance, not manufacturing. He was not making cars. He was not making anything!

He was taking cheap money that didn’t belong to him (thanks to the Fed’s EZ money policies) and lending it to people who couldn’t pay it back.

Thomas Lund’s Parting Gift…

So, when Mr. Lund looked up at the judge on Monday… and said, “Judge, what will be my fine?”… the judge didn’t look at Mr. Lund and say, “Boy, you got 99.”

Instead, Fortune continues:

Lund’s penalty for his role: a mere $10,000. What’s more, the penalty won’t even be considered a fine. The SEC agreed to classify the payment officially as a “gift to the U.S. government,” not an actual punishment.

But the worst part is this: Lund won’t even pay the penalty. The agreement allows Fannie to make the payment for him, which it has agreed to do. And don’t forget: The government had to bail out Fannie and still controls it.

Of course, Lund was not a German industrialist. He was a true American crony.

Regards,

Signature

Bill

Further Reading: The Thomas Lund ruling shows how utterly corrupt the U.S. financial system is. If you’re expecting the powers that be to be honest with you about what’s going on, you’re deluded.

That’s why Bill has been issuing a warning about a coming crisis that could affect every part of your financial life. For full details of the crisis that Bill sees coming, go here now.

MarketInsight_header

Volkswagen shares got crushed following the emissions-rigging scandal.

092415 Volkswagen

As you can see from today’s chart, shares in the German automaker have plunged 29% since the scandal broke.

 


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Some $50 trillion of dollar-denominated bonds are now perched precariously on the edge, after a three-decade bond bull market. What happens to the debt pile when U.S. rates rise?

Forget Iran and Syria – This Is Where WWIII Starts…
World War III will start as a financial war – a financial war that’s already under way. And now that it’s begun, it’s only a matter of time before the U.S. is the victim of a financial Pearl Harbor.

 


Mailbag

Today a reader asks for an update on the simmering unrest at Bill’s cattle ranch in Argentina.

(Catch up here.)

You recently wrote of a budding revolution on your Argentine property. I found it very interesting and have been looking forward to the promised follow-up installment(s) – so far without seeing anything.

Did I just miss it, or is there more to come?

– Tao J.

Bill comment: Here’s a quick update…

After the revolutionaries announced they were not required to pay rent or taxes, thanks to their special status as originarios, we consulted a lawyer in Salta.

“Bill, look, don’t be naïve. They are targeting you because you are a foreigner. And you’re not the only one. The Swiss guy is also having trouble. And so is the German… You’re all big landowners. Theoriginarios are pressing their claims against you, not against the big local landowners.

“Why? Because they know they can bully you. And there’s not much you can do about it. The local owners have a lot of experience with this sort of thing. They know the people better. They understand each other. And they don’t take kindly to being bossed around. Usually, the originarios don’t bother to try.

“In fact, you can look at it as a war that has been going on for 400 years – ever since the Spanish arrived in this part of the world. They always had to put down native uprisings. There were two revolts in the 18th century… both led by guys named Tupac.

Each time, the revolutionaries went from farm to farm, killing people and stealing things. And each time, the army put down the rebellion and caught the leaders. They were pulled apart by horses, in the town square, with their body parts hung in the public places throughout the province as a warning.

“Of course, things have changed. But we still have people, occasionally, who don’t respect the European system of property rights that we have here. And now, unfortunately, we have a government that doesn’t respect them either.

So, the local landowners often take matters into their own hands. I don’t know if it is true or not, but I’ve heard of them burning down people’s houses, blowing up their wells, and killing their cattle. The locals know better than to push them too hard.

“But of course, you can’t do those things. And they know it. So, they expect you to settle with them – for money.

“It’s much like a nuisance class-action suit in the U.S. It may be based on a legal fantasy. But you don’t know what will happen if you take it to court. It’s usually cheaper to settle.”

“Oh…”