Is America Becoming a Third World Country?Ted Baumann Andits whats lying beneath the surface in American politics thenefarious deals made between corporations and the politicians that are supposed to keep them in check that makes me think the Third World is where were headed as a nation. In my global travels, I often find myself in a hotel room, bar or restaurant with only a local newspaper for company at least in those places where I speak the language. A scan of the headlines gives me a pretty good indication of the state of local politics and business. One of my personal indicators of the local environment is the nature and frequency of articles describing government investigations into businesses. Its a great way to see who is aligned with whom, and who isnt. For example, the Times of India, a venerable journalistic outfit in that country, reliably reports at least three to four front page articles every day on the state of conflict between various government ministries and the economic sectors they oversee. You can always tell which businesspeople are on the outs with the political elite by who gets charged with some crime and by omission, whos in their good books. Its thus an essential guide to Indian investment decisions. In a country where cricket is a popular sport, several of the metaphors used to describe these struggles tend to adopt some of the games terminology. Minister X bowls Firm Y for a duck. Firm Y hits Minister X for six. And so on. Yes, you may say, a sound method of analysis suitable to Third World countries, where the rule of law is weak, and corruption endemic. But when you apply it to the United States, things get very interesting, very quickly In recent months, the Justice Department and the New York Attorney Generals Office have trumpeted their alleged crackdown on Wall Street. JP Morgan Chase, for example, agreed to pay $23 billion in fines in 2013. And Bank of America has recently settled for a $16.7 billion fine over mortgage abuses. Thats in addition to a $9.5 billion BoA fine levied by courts in March. (All tax-deductible as losses, naturally.) Of course, being admissions of criminal guilt, you might expect some jail time, too, but Im not holding my breath on that one, and neither should you. Even so, this proves that our government is impartially enforcing the law, right? After all, this isnt chump change. So isnt America still safely in the First World column in the global governance sweepstakes? Not quite. A recent study by the London Business School (LBS) examined more than 7,300 instances when U.S. corporations issued significant corrections to their financial statements between 1996 and 2006. Such restatements typically trigger Security and Exchange Commission (SEC) enforcement actions, because they often imply internal accounting, share trading and other shenanigans. The LBS study cross-referenced these restatements with campaign contributions and lobbying expenditures by the firms and their executives.It found that politically connected firms are on average less likely to be involved in an SEC enforcement action, and face lower penalties if they are prosecuted by the SEC. Specifically, firms that increased their political contributions by $1 million over five years cut their chances of being prosecuted in half. Why would the supposedly impartial SEC enforce the law so lopsidedly? The LBS study suggests that its all about the SECs fear of political consequences when choosing enforcement targets. The more money a firm has donated to key lawmakers, the more likely it is that those lawmakers will become upset by SEC prosecution, leading them to try to punish the agency by reducing its budget. The presence of an established, public relationship between the firm and key politicians could be sufficient because the SEC might be aware of the increased costs of initiating an investigation against such a firm, the study says. Strike one against First World standards of the rule of law. Now for the next pitch. A 2013 Project on Government Oversight research report foundthat since 2001, more than 400 former SEC officials have taken jobs representing firms facing SEC action. The LBS report found that companies that employ ex-SEC lobbyists experience a larger reduction in the probability of enforcement and in penalties than those that do not. Strike two. Definitely, the SEC has to pick and choose its targets. But surely theyre targeting the worst violations, such as the pay-to-play scandal, in which Wall Street firms bribe state and local politicians to give them pension fund business. After all, the SEC established anunambiguous rulebanning Wall Street firms from donating money to politicians who give those firms contracts to manage public pension money. Here comes the windup A major investigationwas conducted early this year into donors associated with 43 financial firms managing New Jersey pension funds, including vampire squid Goldman Sachs. The investigation found that they have spent a total of $11.6 million on contributions to state politicians, including Gov. Christies election campaign and the New Jersey Republican State Committee. Many of these contributions came either just before or just after the Christie administration awarded massive pension management contracts to the firms. Thats in direct violation of the SEC rule, but theres been no mention of an investigation. Indeed, the SEC has prosecuted just one case under the now three-year-old rule. Strike three. And Youre Out! Shortly after the 2008 financial crisis hit, ex-IMF Chief Economist Simon Johnson wrote that the U.S. had undergone quiet coup and become a banana republic. Like many developing countries, the U.S. political system had melded its financial and political elites into one an elite that regards itself as above the law. From 1973 to 2009, the financial sectors share of domestic corporate profits climbed from 16% to over 40%. Donations flowed to Congress and hundreds of SEC officials became rich shills for Wall Street. So when the U.S. economys day of reckoning came in 2007-2008, the only policy options adopted indeed, the only ones on the table were those that bailed out Americas fat cat financiers. The rest of us were left to suffer. When a batter strikes out, theyre supposed to leave the plate. But in todays America, when the elite that have dragged us down to Third World status strike out, they just keep on batting Related selfnews Post Article: Ted Baumann is an Offshore and Asset Protection Editor who joined The Sovereign Society in 2013. As an expat who lived in South Africa for 25 years, Ted specializes in asset protection and international migration. He is the editor of Offshore Confidential and Plan B Club. His writing is featured at The Sovereign Investor, where this article first appeared. For more information about how to protect your assets, please visit here. 