Audit Notes: insider trading versus CDO fraud, 401(k)s, lead and crime

Rough treatment for inside-trading suspects contrasts with CDO probes

The contrast between how aggressively authorities have gone after inside-trading hedge fund impresarios and how softly they’ve tiptoed around Wall Street financial crisis fraud is so stark that it’s almost as if prosecutors and G-men (G-people? What do you call them these days?) are compensating for their impotence in one area with vigor in the other.

Check out how this low-level guy at Stevie Cohen’s SAC Capital got the Hollywood tough-cop treatment, as reported by The New York Times yesterday on page one:

Weeks later, when two Federal Bureau of Investigation agents confronted him outside the Equinox gym in Greenwich Village, Mr. Hollander realized that investigators viewed his former employer as something else — a corrupt organization rife with insider trading.

The agents took Mr. Hollander into a nearby cafe and questioned him about his trading in the stock of a supermarket chain. They showed him a sheet of paper with headshots of several of his former colleagues. At the center was a photograph of Steven A. Cohen, the billionaire owner of SAC, according to two lawyers briefed on the meeting who requested anonymity because they were not authorized to discuss it publicly. The agents compared Mr. Cohen to a Mafia boss who sat atop a criminal enterprise, the lawyers said.

Now imagine this, much less wiretaps, happening with CDO investigations into the Wall Street banks Tim Geithner told prosecutors to lay off of or risk sinking the financial system.

By all means, go after people who cheat. But the consequences of relatively zero-sum insider trading versus the cataclysm inflicted by mortgage securitization fraud aren’t even comparable.

— Kevin Drum has long flagged the connection between lead and the crime wave that surged from the 1960s to the early 1990s—a theory that hasn’t gotten near the coverage it deserves. His cover story in the current Mother Jones is his most comprehensive look yet, and it’s a must read, particularly if you’re not familiar with the theory that leaded gasoline polluting the environment—and not, say, poverty or taking God out of schools—was behind most of the violent crime increase:

The biggest source of lead in the postwar era, it turns out, wasn’t paint. It was leaded gasoline. And if you chart the rise and fall of atmospheric lead caused by the rise and fall of leaded gasoline consumption, you get a pretty simple upside-down U: Lead emissions from tailpipes rose steadily from the early ’40s through the early ’70s, nearly quadrupling over that period. Then, as unleaded gasoline began to replace leaded gasoline, emissions plummeted.

Intriguingly, violent crime rates followed the same upside-down U pattern. The only thing different was the time period: Crime rates rose dramatically in the ’60s through the ’80s, and then began dropping steadily starting in the early ’90s. The two curves looked eerily identical, but were offset by about 20 years…

Put all this together and you have an astonishing body of evidence. We now have studies at the international level, the national level, the state level, the city level, and even the individual level. Groups of children have been followed from the womb to adulthood, and higher childhood blood lead levels are consistently associated with higher adult arrest rates for violent crimes [19]. All of these studies tell the same story: Gasoline lead is responsible for a good share of the rise and fall of violent crime over the past half century.

Read it all, and pass it on.

— The Washington Post looks at our broken private retirement system, reporting on how the ease of withdrawing money from your 401(k) is seriously undermining their effectiveness as a supplement to Social Security. The Post calculates that early withdrawals total roughly one quarter of all money deposited in 401(k)s in a year.

In 2010, 28 percent of participants reported having an outstanding loan against their retirement accounts, an all-time high, according to a survey of 110 large employers by Aon Hewitt, a human resources consultancy. And nearly 7 percent of employees took hardship withdrawals that year — roughly a 40 percent increase since the recession, while 42 percent of workers cashed out their plans rather than rolling them over when they changed jobs…

A recent study by Boston College’s Center for Retirement Research found that the typical household approaching retirement age has an average of $120,000 in retirement savings, enough for roughly a $7,000-a-year annuity.

On top of that, 401(k)s entrust critical investment decisions to people who have no idea what they’re doing and most end up getting gouged by mutual-fund industry fees.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,