When the FBI Comes Calling…®

September 19, 2005

The pros and cons of fleeing the country STREET TALK

By John Dizard

I believe the most significant piece of news in the markets this week was the breakout in the dollar price of gold, which seems to have decisively broken the Dollars 450 lid. Good news for gold is usually bad news sooner or later for almost every other sort of asset, other than, say, small arms ammunition and long-life food packs for the survivalist trade.

Gold's breakout was coterminous with the US government's second wave response to the Katrina disaster. Anyone's desire to hold the US dollar should have been tempered by the openly expressed willingness of the White House to write any checks necessary for the relief of disaster victims or Federal contractors, with priority given to whichever of the two groups has better lobbyists. When the president's cheque-writing enthusiasm was seconded by congressman Tom Delay, who now finds no excess spending at all in the Federal budget, Mr Market decided to take the offer side in the gold pit.

Of course, someone from Chicago, either the exchanges or the university, will pipe up to say that inflation and, with it, the gold price, is everywhere and always a monetary phenomenon. Yes, if the momentary fevers of politicians are quenched by all powerful central banking authorities, then it would be possible to make a bullish case for the dollar in relation to gold.

However, Alan Greenspan has only a handful of Federal Reserve meetings over which he can preside, and his pronouncements sound much more like valedictories than calls to action. For example, last week someone close to the Fed released a letter from the chairman to senator Robert Bennett warning of the risk to the derivatives markets from Fannie Mae and Freddie Mac's hedging activities. Since the letter seemed to take no account of the recent reduction in derivatives risk at the two companies (or the increase in credit risk on their asset side), one formed the impression this was another "I-told-you-so" exhibit for the chairman's February 2007 Congressional testimony on the recent crash.

In other words, Mr Greenspan, with all respect, is history. The Bush administration is reliable in one respect: you can be sure that the successor Fed chairman will be certified by the courtiers as "on message". That message, the president's recent speeches show, will be that money will be spent in any quantity necessary to buy approval ratings and that fiscal looseness will not be offset with monetary restraint.

If we are heading for a 1970s reprise of inflation, hard times and expensive gold, then we will also probably see another post-boom phenomenon: the indicted big-shot. You can't have a boom without excess and you can't have excess without some people deciding it takes too long to get rich legally.

So, in the next bust, we're going to need more human sacrifice in the form of bad rich people being hauled off for long prison sentences after big show trials with expensive mistresses on the witness stands.

The prospect makes you wonder why more of these people don't just get on the first thing smoking out of US jurisdiction.

I called on Douglas McNabb, the lead partner with Washington's McNabb Associates, who specialises in international extradition cases, espionage and other white-collar crime.

"We are seeing an escalation in global US Federal criminal prosecutions," says McNabb, "and that includes white collar crime as well as terrorism. That would include securities fraud, wire fraud, bank fraud and money laundering. They're even getting aggressive about extraditing people for antitrust violations."

In the past, extraditions were allowed by treaty parties on the basis of a "laundry list" of crimes. Now, the rule is an extraditable offence merely has to be a crime in both countries. As McNabb says: "Globally, international extradition cases are very hard to win (from the point of view of the defence counsel for the offender)."

There are very few countries with which the US does not have extradition treaties, and not that many American criminals have made arrangements in advance with the Republic of Cuba or the Islamic Republic of Iran. And where there are no such treaties, as there are none with some Middle Eastern countries, the US Supreme Court has ruled that kidnapping and rendition by Special Forces, CIA or FBI agents is not grounds for the dismissal of an indictment.

Before you have a "red notice" put out on you that identifies you as subject to an international arrest warrant, go to some relatively comfortable and welcoming country that will grant you citizenship in short order. Oh, and hire some thugs to keep the CIA kidnapping teams at bay.

"That is your conclusion," says McNabb, "but not one I would necessarily disagree with."