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Should We Have Bailed Out AIG and Other Wall Street Banks in 2008?

by Frank Thomas and John Lawrence

Was the Congress, Fed, and Treasury Rescue of AIG the Right Decision in 2008?

Frank Thomas says "Yes." John Lawrence says "No."

Frank's take:

David Stockman: “We Should Have Let The Market RIP,  AIG Fall … and Lived With The Consequences”

Introduction

In his book, The Great Deformation, David Stockman presents a broad “no prisoners taken” indictment of our systemic social-financial-political maladies or ‘deformations.’ I share his view we have descended to a gamed, distorted system where almost “nothing is working” coherently that can save it from the next Boom-Bubble-Bust implosion unless there is fundamental change.    

Stockman’s Austrian libertarian advice is that government should stop governing. Back to the pre-Roosevelt Carter Glass era of financial discipline under the gold standard and the Fed operating as a passive banker’s bank, making loans and accepting deposits. Bad government and pernicious Keynesian economics are core causes of our present ills that justify a turnabout to self-correcting “unfettered market capitalism” of Hoover, Coolidge and everyone before them … this is farfetched, to put it mildly.                                                                                              

Stockman’s brave new world of a self-policing system of unfettered market policies free of government interventions and strict financial regulations – a radical idea with no hard numbers on the human costs, job losses, business failures – is ironic.  This is just what we have had a good taste of over the last thirty years! And all it has brought us is a world of energized greedy forces and financial wizards who can burn the house down and make a fortune at it!

Given Stockman’s deep anti-government, anti-Keynesian mindset, it’s  no surprise he favored letting AIG and major banks fall. In his words: “despite creating lots of job losses and lots of pain lasting for a generation  …  this action would create lessons, it would create discipline  …  new firms would grow out of the remnants of AIG, Goldman Sachs, Morgan Stanley, etc. …  bank bailouts were unnecessary  …  the Main Street banking system was never in serious jeopardy  ...  the money market industry wasn’t imploding.”

These presumed ‘gospel truths’ need to be viewed against what actually took place in financial markets during the bubble crisis times of 2006-08. I shall leave it to the reader to decide whether the Congress, Fed, and Treasury acted appropriately in bailing out AIG at a point in time the economy was entering a mini-depression and the worldwide financial industry was under exceptional strains from many directions.   

Why Did The Fed Recommend Rescuing AIG?

Ben Bernanke gave a ‘right to-the-point’  answer to this question on CBS TV March 10, 2009 – the essence of which he repeated to the Committee on Financial Services, House of Representatives March 24, 2009.  

“Of all the events and all the things that we’ve done in the last 18 months, the single one that makes me the angriest, that gives me the most angst, is the intervention with AIG. … Here was a company that made all kinds of unconscionable bets. Then, when those bets went wrong, they had a – we had a situation where the failure of that company would have brought down the financial system. … In deciding to rescue AIG, the government worried that if it did not bail out the company, its collapse could lead to a cascading chain reaction of losses, jeopardizing the stability of the worldwide financial system .”  (note: wrong says Stockman as regular bankruptcy would have worked for all the mega financial institutions … we didn’t need Goldman Sachs, Morgan Stanley,  Bear Stearns because Main Street banks didn’t own toxic assets like securitized mortgages (CDOs) and credit default swaps (CDSs).

In the 2^nd half of 2008, global markets were experiencing unprecedented, multi-dimensioned financial pressures and a worldwide loss of confidence. In Bernanke’s words to the Committee on Financial Services March 24, 2009:                                                                

“I will describe why supporting AIG was a difficult but necessary step to protect our economy and stabilize our financial system. … The Federal Reserve and the Treasury agreed that AIG’s failure under the conditions then prevailing would have posed unacceptable risks for the global finance system and for our economy” (note: wrong says Stockman who casually dismisses as extreme fears the catastrophic implications and global ‘contagion’ from an AIG failure in 2008 – “There will be lots of pain … but let the market rip and live with the consequences”).

What were the extraordinary financial risks that had been building up during 2005-08?

• Derivatives allow the sharing or redistribution of risk. BUT, they can blow up in a BIG way by the high leverage and non-transparent buildup of risk inherent in derivative CDO/CDS contracts – especially when used recklessly such as tools for speculation which can lead to taking on too much risk.  Non-transparency, opacity, extreme complexity, counterparty risk are the primary risks in the OTC [Over the Counter] derivatives market. The opacity and complexity caused by financial entities interlinked by a large number of non-transparent derivatives contracts means the default of one party could cause severe damage to the credit soundness of its counterparties leading to a broad market disruption. As stated in a joint Treasury and Financial Services Authority paper on CDS trading, “ The private nature of contracting with limited public information, the complex web of mutual independence, the difficulties of understanding the nature and level of risks increase uncertainty in times of market stress and accordingly pose risks to financial stability.”

• In Sept. 2008, Lehman Brothers’ default  was the first example of a major counterparty failure to meet obligations on its debt and CDS derivatives. Lehman’s $600 billion bankruptcy broke all world records and led to the failure of other institutions that had substantial derivatives exposure.  Financial tremors erupted globally on fears of systemic defaults becoming extreme. Lehman exposed the systemic weakness of having many counterparty credit risks that were not fully transparent nor given much attention. To correct this, CDS risk mitigation techniques have been initiated, e.g., bilateral netting and overcollateralization of swap liabilities as effective ways to address counterparty credit risks in CDS markets. Also, a “central clearing house” proposal for CDS transactions is a sound step in making these transactions more transparent.                                                                                           

• Fueling the fear of ‘financial contagion’ was the spreading of toxic asset risk and threat of bankruptcy to Freddie Mac, Fannie Mae, Washington Mutual, Ambac – right when employment, new jobs, disposable income and GDP growth were plummeting. The placing of Freddie Mac and Fannie Mae under conservatorship added to the tension in financial markets.  

• Another factor at the root of the 2008 financial crisis were U.S. accounting rules for reporting derivative risk from mortgage securitizations (CDOs) and credit default swaps (CDSs).  U.S. accounting rules, unlike those in Europe, allowed banks to report a much smaller portion of their total derivatives risk. This reporting omission enabled banks to erase trillions in assets and keep trillions of mortgage-linked bonds or derivative liabilities off their balance sheets. This intensified the non-transparency and inadequate control of derivative products.  Fortunately, corrections to this reporting omission have been made. Major U.S. financial institutions are now reporting their full notional and net derivative exposure on the balance sheet. Hopefully, this move away from opaque, non-transparent financial statements will ensure banks are more cautious in using derivative instruments in a manner that doesn’t explode in their faces in times of distress.

• Mortgage securitizations kept off the balance sheet became a costly shock when banks had to repurchase home mortgage loans sold to special investor vehicles on a huge scale. Also, AIG’s derivatives contracts required large collateral payments if its AAA credit rating was downgraded as it was in Sept. 2008 – causing a massive liquidity squeeze. This and AIG’s huge CDS positions led to a reported $99 billion loss in 2008. To stabilize the situation for large Wall Street firms making markets in CDS contracts, the Treasury decided to extend to AIG a secured credit facility of $85 billion. This exploded to $182.5 billion after the insurer couldn’t pay banks on derivatives tied to those home mortgage loans. In exchange for this financial investment, taxpayers secured a whopping 92% ownership of  AIG!          

• AIG’s $1.8 trillion notional derivative risk exposure was intricately connected with financial parties worldwide, including 21 auxiliary holdings and millions of policy holders who were also counterparties. The insurer ended up owing multibillion dollar payments to Merrill Lynch, JP Morgan, Bank of America, Goldman Sachs, Citigroup – in all, 80 companies and municipalities including major European banks like the Deutsche Bank, Societe Generale of France, UBS of Switzerland, Barclays of Britain, etc. (Barclays and Citigroup were customers of AIG’s securities lending program, not derivatives). Government due diligence analyses of the books confirmed the potential breadth of losses were stupendous – posing a dangerous chain reaction that Stockman downplays but Congress, the Fed and Treasury did not! Officials feared the sheer market shock from an AIG failure would precipitate a global financial breakdown of systemic proportions. So this was another reason why government officials decided to bail out AIG and by doing so, its major counterparties who had taken on enormous, irresponsible CDO risks.

• Another system risk is that “AAA” rated firms, like AIG, were presumed to be safe. They didn’t have to post any collateral to the practically unlimited derivatives they were allowed to create out of thin air.

• Other potential risk exposures tied to an AIG failure were specified by Ben Bernanke before the Committee on Financial Services, U.S. House of Representatives March 24, 2008. In Bernanke’s words:

_______________________________________________________________________________

1. AIG would have likely been put into rehabilitation by their regulators leaving policy holders facing considerable uncertainty about the status of their claims. AIG’s insurance subsidiaries had considerable exposure to AIG’s Financial Products unit that would have weakened them if the parent company went bust. 


2. State and local agencies that had lent $10 billion to AIG would have suffered losses.


3. Workers whose 401(k) plans had purchased $40 billion of insurance from AIG to insure a stable fund value against a decline in value would have seen that insurance disappear.


4. Global banks and investment banks would have suffered losses on loans and lines of credit to AIG and on derivatives with AIG’s Financial Products unit. The banks combined exposure here was $50 billion.


5. Money market mutual funds holding approximately $20 billion of AIG’s commercial paper would also have taken losses, exacerbating direct effects of a default on AIG counterparties.


6. Once begun, a financial crisis can spread unpredictably. For example, Lehman’s default on commercial paper caused a major money market fund to “break the buck” and suspend withdrawals, igniting a general run on prime money market mutual funds and in turn causing severe stress in the commercial paper market.


7. Uncertainties about the safety of insurance policy products could have led to a run on the broader insurance industry by policy holders and creditors.


8. Market financial participants knew that many institutions had large exposures to AIG. Its failure would have led market participants to pull back more from commercial and investment banks – escalating even more pressure on those institutions.


9. Finally, a very critical point raised by Bernanke was that federal bankruptcy laws do NOT sufficiently insure the orderly resolution (e.g., dissolution) of nonbank financial institutions when a failure poses substantial systemic risks. Lacking this no federal agency could put AIG into conservatorship or receivership to unwind slowly to protect policyholders and impose appropriate losses on creditors and counterparties. Also, no federal agency could provide capital to stabilize AIG. However, the Federal Reserve did have the authority to lend on a fully secured basis, consistent with its emergency lending authority provided by Congress and the Fed’s responsibility to provide financial stability.  

No More Excuses: Soaring Market Latest Evidence of Need to Tax Wall Street

from Alternet                    By Deborah Burger

110 COMMENTS

With all the pain the economic crash has inflicted, the bill for Wall Street is due.

March 7, 2013  |  

Now that the boom times have returned for Wall Street with consecutive days of record market highs, the time for excuses must end, and the Obama administration and Congress should join with the other world markets in adopting a Robin Hood tax on financial speculation.

The signs could not be more clear. The New York Times, March 3, calls this a “golden age for corporate profits,” and the financial sector is leading the gold rush. Just last year the top six U.S. banks raked in $63 billion – with Bank of America pulling in more than Walt Disney and McDonalds combined. 

But it remains a different story in Main Street communities across America, a new pauper’s age would be a more apt label.

“How is this recovery if only Wall Street, but not our families and communities, are on the upswing?” asks Amanda Devecka-Rinear of National People's Action and the Robin Hood  campaign.

"It has always been true that Wall Street can clearly afford to bail out Main Street with enough money to build homes, strengthen education, end the AIDS pandemic, fight global climate change and create jobs. Here is just further proof," notes Jennifer Flynn, managing director of Health GAP and the Robin Hood campaign.

Just ask the banksters and high rollers themselves.

“What’s amazing about this bull market is that people still don’t think it’s real,” said Richard Bernstein, chief executive of Richard Bernstein Advisors, a money management firm to the New York Times March 5. “We think this could be the biggest bull market of our careers.”

“The momentum is clearly in the upward direction," Brian Lazorishak, portfolio manager and quantitative analyst at Chase Investment Counsel told the Wall Street Journal March 6.

“So far in this recovery, corporations have captured an unusually high share of the income gains,” Ethan Harris, co-head of global economics at Bank of America Merrill Lynch told the New York Times on March 3. “The U.S. corporate sector is in a lot better health than the overall economy. And until we get a full recovery in the labor market, this will persist.”

So will Wall Street share their good fortune voluntarily with those harmed by the economy they wrecked with their reckless gambling with our homes, our savings, and our futures?

Apparently no time soon.  “Right now, C.E.O.’s are saying, ‘I don’t really need to hire because of the productivity gains of the last few years,’ ” said Robert E. Moritz, chairman of the accounting giant PricewaterhouseCoopers to the New York Times March 3.

With all the pain the economic crash has inflicted, the bill for Wall Street is due.

A major step forward is within sight.

The Inclusive Prosperity Act, introduced by Rep. Keith Ellison, could raise up to $350 billion every year with a minimal tax of just 50 cents on every $100 of stock trades, and lesser percentages on trading of bonds, currencies, derivatives and other financial instruments.

Most other major markets have already figured this out, including 11 European Union nations, among them the big economies of France, Germany, Italy, and Spain. Major financial centers, including London, Switzerland, Hong Kong and Singapore, also have financial transactions taxes on their stock exchanges.  

Are we just slow learners or does Wall Street throw around too much clout in Washington?

As to claims by the Wall Street opponents of a financial transaction tax that the impact would mostly fall on “ordinary investors,” a video distributed this week by Mother Jones, “The Great American Inequality Video,” tells a different story.

The video notes that:

• The wealthiest 1 percent of Americans own half the country’s stocks, bonds and mutual funds
• The bottom 50 percent own just .5%, half of one percent, of all stocks, bonds and mutual funds

Let’s get off the dime and act now.

Deborah Burger, RN is a co-president of National Nurses United, a founding member of the Robin Hood Tax Campaign, www.RobinHoodTax.org.

Lords of Disorder: Billions For Wall Street, Sacrifice For Everyone Else

Published on Wednesday, February 27, 2013 by Campaign for America's Future Blog

by  Richard Eskow

The President’s “sequester” offer slashes non-defense spending by $830 billion over the next ten years. That happens to be the precise amount we’re implicitly giving Wall Street’s biggest banks over the same time period.

We’re collecting nothing from the big banks in return for our generosity.  Instead we’re demanding sacrifice from the elderly, the disabled, the poor, the young, the middle class – pretty much everybody, in fact, who isn’t “too big to fail.”

That’s injustice on a medieval scale, served up with a medieval caste-privilege flavor. The only difference is that nowadays injustices are presented with spreadsheets and PowerPoints, rather than with scrolls and trumpets and kingly proclamations.

And remember: The White House represents the liberal side of these negotiations.

The Grandees

The $83 billion ‘subsidy’ for America’s ten biggest banks first appeared in an editorial from Bloomberg News – which, as the creation of New York’s billionaire mayor Michael Bloomberg, is hardly a lefty outfit.  That editorial drew upon sound economic analyses to estimate the value of the US government’s implicit promise to bail these banks out.

Then it showed that, without that advantage, these banks would not be making a profit at all.

That means that all of those banks’ CEOs, men (they’re all men) who preen and strut before the cameras and lecture Washington on its profligacy, would not only have lost their jobs and fortunes in 2008 because of their incompetence – they would probably lose their jobs again today.

Tell that to Jamie Dimon of JPMorgan Chase, or Lloyd Blankfein of Goldman Sachs, both of whom have told us it’s imperative that we cut social programs for the elderly and disabled to “save our economy.” The elderly and disabled have paid for those programs – just as they paid to rescue Jamie Dimon and Lloyd Blankfein, and just as they implicitly continue to pay for that rescue today.

Dimon, Blankfein and their peers are like the grandees of imperial Spain and Portugal. They’ve been given great wealth and great power over others, not through native ability but by the largesse of the Throne.

Lords of Disorder

Just yesterday, in a rare burst of candor, Dimon said this to investors on a quarterly earnings call: “This bank is anti-fragile, we actually benefit from downturns.”

It’s true, of course. Other corporations – in fact, everybody else – has to survive or fail in real-world conditions. But Dimon and his peers are wrapped in a protective force field which was created by the people, of the people, and for … well, for Dimon and his peers.

The term “antifragile” was coined by maverick financier and analyst Nassim Taleb, whose book of the same name is subtitled “Things That Gain From Disorder.” That’s a good description of JPMorgan Chase and the nation’s other megabanks.

Arbitraging Failure

Dimon’s comment was another way of saying that his bank, and everything it represents, is The Shock Doctrine made manifest. The nation’s megabanks are arbitraging their own failures, and the economic crises that flow from those failures.

These institutions are designed to prey off economic misery. They suppress genuine market forces in order to thrive, and they couldn’t do it without our ongoing help. The Treasury Department and the Federal Reserve are making it happen.

We who have made these banks “antifragile” have crowned their leaders our Lords of Disorder.

Once Dimon told reporters that he explained to his seven-year-old daughter what a financial crisis is – “something that happens … every five to seven years,” which “we need to do a better job” managing.

Thanks to fat political contributions, Dimon manages them well. So do his peers. Misery is the business model. And by Dimon’s reckoning another shock’s coming any day now.

Money For Nothing

Bloomberg’s use of the word ‘subsidy’ in this instance can be slightly misleading. Public institutions don’t issue $83 billion in checks to Wall Street’s biggest banks every year. But they didn’t let them fail as they should have – through an orderly liquidation – after they created the crisis of 2008 through fraud and chicanery. Instead it allowed them to prosper from it, creating that $83 billion implicit guarantee.

As we detailed in 2011, the TARP program didn’t “make money,” either. Banks received a free and easy trillion-plus dollars from our public institution, on terms that amounted to a gift worth tens of billions, and possibly hundreds of billions.

That gift prevented them from failing. In private enterprise, this kind of rescue is only given in return for part ownership or other financial concessions. But our government asked for nothing of the kind.

Unpaid Debts

Breaking up the big banks would have protected the public from more harm at their hands. That didn’t happen.

Government institutions could have imposed a financial transaction tax, whose revenue could be used to repair the harm the banks caused while at the same time discouraging runaway gambling.  They still could.

They could have imposed fees on the largest banks to offset the $83 billion per year advantage we’ve given them. They still could.

But they haven’t. This one-sided giveaway is the equivalent of an $83 billion gift for Wall Street each and every year.

Cut and Paste

$83 billion per year: Our current budget debate is framed in ten-year cycles, which means that’s $830 billion in Sequester Speak.  You’d think our deficit-obsessed capital would be trying to collect that very reasonable amount from Wall Street. Instead the White House is proposing $130 billion in Social Security cuts, $400 in Medicare reductions, $200 billion in “non-health mandatory savings,” and $100 billion in non-defense discretionary cuts.

That adds up to exactly $830 billion.

No doubt there is genuine waste that could be cut. But $830 billion, or some portion of it, could be used to grow our economy and brings tens of millions of Americans out of the ongoing recession that is their daily reality, even as the Lords of Disorder continue to prosper. It could be used for educating our young people and helping them find work, for reducing the escalating number of people in poverty, for addressing our crumbling infrastructure, for giving people decent jobs.

It’s going to Wall Street instead.

Trillion-Dollar Tribute

The right word for that is tribute. As in, “a payment by one ruler or nation to another in acknowledgment of submission …” or “an excessive tax, rental, or tariff imposed by a government, sovereign, lord, or landlord … an exorbitant charge levied by a person or group having the power of coercion.” (Courtesy Merriam-Webster)

In this case the tribute is made possible, not by military occupation, but by the hijacking of our political process by the corrupting force of corporate contributions.

The fruits of that victory are rich: Bank profits are at near-record highs. Most of the country is still struggling to dig out from the wreckage they created but, as Demos’ Policy Shop puts it, “for the banks it’s 2006 all over again.”

On Bended Knee

“Millions for defense,” they said in John Adams’ day, “but not one cent for tribute.”

Today we’re paying for both. That doesn’t leave much for the elderly, the disabled, the impoverished, the children, or anybody else who doesn’t “benefit from disorder.” Nobody’s fighting for them in this budget battle.

That leaves the public with a clear choice: Demand solutions that are more just and democratic – or submit willingly to the Lords of Disorder.

© 2013 Campaign for America's Future

Richard (RJ) Eskow is a well-known blogger and writer, a former Wall Street executive, an experienced consultant, and a former musician. He has experience in health insurance and economics, occupational health, benefits, risk management, finance, and information technology. Richard has consulting experience in the US and over 20 countries.

Why Democrats and Republicans Are Both Wrong About the Economy

by John Lawrence from the San Diego Free Press

The unemployment rate is 7.8%. Both parties agree that this is too high, but they propose totally different solutions to create more jobs. The Republican solution is to give more tax breaks and other advantages to the rich and to corporations because they are the job creators. Really? Then why haven't they created more jobs in the last 30 years. This historical experiment of "trickle down" economics has been tried since the time of Ronald Reagan and it has proven to be an abject failure. Yet Republicans are still pushing it as the solution to all our problems. 

Esteemed Nobel laureate and Princeton professor Paul Krugman wants to take the traditional Keynesian approach and do deficit spending to improve the economy. He says there's no reason to worry about the deficit since the US can borrow money at extremely low rates. Not to worry. He sides with Dick Cheney who famously said, "Deficits don't matter." He and Bush then went on to add trillions to the national debt by fighting two unpaid for wars, tax breaks for the rich and an unpaid for prescription drug benefit for seniors that was in reality a giveaway to the pharmaceutical companies. But now that a Democratic President is in office, Republicans are all worried about deficits. They should have been worried when George W Bush was doing the profligate spending.

However, I disagree with both Cheney and Krugman. Deficits do matter and here's why. Sure the government can borrow a lot of money, as much as it wants to, at extremely low rates. But the government has to pay interest on the national debt and that is a growing part of the budget. Interest on the debt is the fourth largest government expenditure after Defense, Medicare and Medicaid. In 2011 Federal, state and local  governments spent $454,393,280,417.03 on interest. It actually came down dramatically in 2012 to $359,796,008,919.49. That's still a lot of money. The Federal government alone spent around $220 billion in net interest on its debt in 2012, and is predicted to spend over a trillion dollars in interest by 2020. That's $1 trillion we can't spend to educate our kids or to replace our badly worn-out infrastructure.

And there's no guarantee that interest rates will continue to remain at historical lows. They are being held there right now by the Federal Reserve's policy of quantitative easing. The Fed is printing money at the rate of $85 billion a month. This money is being essentially given to the large Wall Street banks. Theoretically it's being loaned, but if someone loans you money at a zero interest rate, why would you ever pay it back? It's foolish to think that interest rates will always remain this low and that foreign nations and individuals will continue to loan us money ad infinitum.

The Fed's policy of printing money and then giving it to the big banks relies on the theory that low interest rates will get the economy moving again. The theory goes that people will be attracted to the low interest rates, borrow money and consume. It assumes that banks will actually loan out the money. Since consumption is 70% of the US economy, GDP will increase and that will create more jobs. In other words the Fed is exercising the same trickle down theory of economic growth made famous by Ronald Reagan and that has been tried for the last 30 years and failed. The Fed is essentially devaluing American currency in the hopes that this will create jobs. And it has been a big failure insofar as job creation is concerned but it has kept the US government's borrowing rates low.

So if both deficit reduction and job creation are important, how do you do both. Put simply the US government has to walk and chew gum at the same time. The Republican emphasis on cutting spending, especially spending on social programs, would lead to austerity and that would contract the economy even more. So that isn't the solution. To be fair President Obama has not been on the side of deficit spending as a way to get the economy out of the doldrums. He has been for a balanced approach of stimulating the economy and paying down the deficit. But Paul Krugman and many Democratic theorists like Robert Reich have.

The trick is to note that government spending does not have to be deficit spending. Government spending can increase without incurring greater deficits by increasing government revenues. And there are different varieties of government spending. Republicans favor just giving government money to private corporations and having them do the job. Their policy is to let the government just be a money conduit from taxpayers to corporations. Alternatively, government can spend money directly on jobs programs like rebuilding infrastructure. Instead of using the indirect approach which amounts to pushing on a string which is what the Fed is doing and which Republicans advocate, the government can actually create jobs directly in the public sector. If you want to create jobs, why not just create jobs directly instead of trying to get the private sector to create jobs. President Obama should just get up and say, "We've tried various policies to get the private sector to create jobs; they haven't worked so now the government, the public sector, is going to create jobs directly."

But here's where Democrats and President Obama have a problem. Instead of calling for more revenue by taxing the rich and corporations and government direct spending instead of spending to fund private corporations to rebuild infrastructure, Obama is reticent because he is afraid of being labeled a socialist. No worries, he's already been labeled a socialist despite his administration's being the most pro-business administration in years. And beware of the public/private partnership which is just another variation of the privatization of functions which the government can do more efficiently. We don't want to replace the military-industrial complex with an infrastructure-industrial complex replete with lobbyists, cost plus contracts and highly paid CEOs. There's no need for Wall Street to get involved.

Well, where is the money going to come from? Senator Bernie Sanders has an answer: End Offshore Tax Havens. One out of four profitable corporations pays nothing in taxes. Tax rates on profits are the lowest since 1972. Last year Facebook paid nothing despite having a billion dollars in profits. Government revenue as a percentage of GDP is lower than at any time in history. Corporate contributions to tax revenue are the lowest of any major country on earth. It is absurd for major corporations to stash huge amounts of money in countries like the Cayman Islands which have a zero tax rate. 

Bernie Sanders and Jan Schakowsky have introduced the Corporate Tax Fairness Act. The bill will raise $590 billion over the next decade. The bill will also stop giving tax breaks to corporations for shipping jobs overseas. Their bill would prevent oil companies from disguising royalty payments to foreign countries as taxes in order to reduce their taxes in the US among other things. And it has a snowball's chance in hell of passing. A financial transaction tax would bring in as much as $100 billion annually. We used to have one; Europe just recently enacted one. Let's end the "carried interest" loophole for hedge and private equity funds. Wall Street needs to start paying its fair share.

Corporations have been getting away with murder in not paying their fair share of taxes. This is from an article by Bernie Sanders:

"In 2010, Bank of America set up more than 200 subsidiaries in the Cayman Islands (which has a corporate tax rate of 0.0 percent) to avoid paying U.S. taxes. It worked. Not only did Bank of America pay nothing in federal income taxes, but it received a rebate from the IRS worth $1.9 billion that year. They are not alone. In 2010, JP Morgan Chase operated 83 subsidiaries incorporated in offshore tax havens to avoid paying some $4.9 billion in U.S. taxes. That same year Goldman Sachs operated 39 subsidiaries in offshore tax havens to avoid an estimated $3.3 billion in U.S. taxes. Citigroup has paid no federal income taxes for the last four years after receiving a total of $2.5 trillion in financial assistance from the Federal Reserve during the financial crisis."

The sad fact is that the private sector is not in the process of creating jobs but of destroying jobs through automation and robotics. Almost anything a human being might have done in a job is now being done by robots. Some say that this creates jobs for "knowledge workers." Sure if you're among the upper 1% in knowledge talent. Companies like Microsoft, Google, Apple and Facebook are not looking for the average college graduate. They're looking for the upper 1% of college graduates. Together they employ less than 200,000 people in the US. The top talent in every field are making good money. Everyone else is going downhill if they're employed at all. 50% of college graduates are either unemployed or underemployed in terms of their qualifications. In the 2009-2010 recovery, 93% of the gains in income went to the top 1%. 

Why should the private sector create jobs if they can get a robot to do the work 24 hours a day at a cost of less than $5.00 an hour? If the private sector will not create jobs, that leaves the government to create jobs directly.  Instead of pushing on a string with policies that are supposed to create jobs indirectly by encouraging the private sector to do so, government should get more involved. More government revenues plus direct job creation rebuilding infrastructure could result in growing the economy, providing good middle class jobs and paying down the debt.

Chrystia Freeman in her book Plutocracy explains this phenomenon which results in the divergence of jobs and income, creating a well to do upper 1% class and everybody else:

"This is what ecomomists call the "superstar" effect - the tendency of both technological change and globalization to create winner-take-all economic tournaments in many sectors and companies, where being the most successful in your field delivers huge rewards, but coming in second place, and certainly in fifth or tenth, has much less economic value."

We are seeing the effects of a meritocracy where the top 1% of talent merges with the top 1% in terms of income and wealth. This is great for the top 1% of graduates from elite colleges but not so much for the average graduates of average colleges with $100,000. in student loan debt and a job at Starbucks instead of a career type job in their field. In every field the chasm between the superstars and everyone else is getting bigger and bigger. Inequality increases with the acceleration of meritocracy. Meritocracy and plutocracy converge creating a democratic dystopia.

That's why the government has to step in to regulate this runaway dystopia. Taxes on corporations and the rich need to be increased in order to tamp down inequality. This revenue needs to be redistributed to the former middle class in terms of job programs. It could be redistributed in terms of welfare and unemployment insurance, but this creates a class of dependents. It would be much better to create a middle class of workers rebuilding infrastructure. And this is not a trivial job. The American Society of Civil Engineers estimates that there is $2 trillion worth of work that needs to be done just to bring roads, bridges and other basic infrastructure up to par. But there is more to infrastructure than just that. When you consider all that needs to be done to prevent and combat the changes due to global warming, there is enough potential work out there to fully employ US workers for generations. Utilities need to be hardened and undergrounded. Fossil fuel powered electric plants need to be converted to solar and wind. Buildings need to be made less energy consuming. High speed rail needs to be implemented. Housing needs to be moved back from the shorelines.

There is no lack of work that needs to be done, and this is work the private sector not only won't do but in many cases it is work that the private sector is lobbying against doing. They profit from using the atmosphere as a dump. It's crucial that the government prevent runaway wealth maldistribution, create jobs that the private sector has no incentive to create and save the planet from ecological disaster.

Gangster Bankers: Too Big to Jail

Illustration by Victor Juhasz

By Matt Taibbi

February 14, 2013 8:00 AM ET from Rolling Stone

How HSBC hooked up with drug traffickers and terrorists. And got away with it

The deal was announced quietly, just before the holidays, almost like the government was hoping people were too busy hanging stockings by the fireplace to notice. Flooring politicians, lawyers and investigators all over the world, the U.S. Justice Department granted a total walk to executives of the British-based bank HSBC for the largest drug-and-terrorism money-laundering case ever. Yes, they issued a fine – $1.9 billion, or about five weeks' profit – but they didn't extract so much as one dollar or one day in jail from any individual, despite a decade of stupefying abuses.

People may have outrage fatigue about Wall Street, and more stories about billionaire greedheads getting away with more stealing often cease to amaze. But the HSBC case went miles beyond the usual paper-pushing, keypad-punching­ sort-of crime, committed by geeks in ties, normally associated­ with Wall Street. In this case, the bank literally got away with murder – well, aiding and abetting it, anyway.

Daily Beast: HSBC Report Should Result in Prosecutions, Not Just Fines, Say Critics

For at least half a decade, the storied British colonial banking power helped to wash hundreds of millions of dollars for drug mobs, including Mexico's Sinaloa drug cartel, suspected in tens of thousands of murders just in the past 10 years – people so totally evil, jokes former New York Attorney General Eliot Spitzer, that "they make the guys on Wall Street look good." The bank also moved money for organizations linked to Al Qaeda and Hezbollah, and for Russian gangsters; helped countries like Iran, the Sudan and North Korea evade sanctions; and, in between helping murderers and terrorists and rogue states, aided countless common tax cheats in hiding their cash.

"They violated every goddamn law in the book," says Jack Blum, an attorney and former Senate investigator who headed a major bribery investigation against Lockheed in the 1970s that led to the passage of the Foreign Corrupt Practices Act. "They took every imaginable form of illegal and illicit business."

That nobody from the bank went to jail or paid a dollar in individual fines is nothing new in this era of financial crisis. What is different about this settlement is that the Justice Department, for the first time, admitted why it decided to go soft on this particular kind of criminal. It was worried that anything more than a wrist slap for HSBC might undermine the world economy. "Had the U.S. authorities decided to press criminal charges," said Assistant Attorney General Lanny Breuer at a press conference to announce the settlement, "HSBC would almost certainly have lost its banking license in the U.S., the future of the institution would have been under threat and the entire banking system would have been destabilized."

It was the dawn of a new era. In the years just after 9/11, even being breathed on by a suspected terrorist could land you in extralegal detention for the rest of your life. But now, when you're Too Big to Jail, you can cop to laundering terrorist cash and violating the Trading With the Enemy Act, and not only will you not be prosecuted for it, but the government will go out of its way to make sure you won't lose your license. Some on the Hill put it to me this way: OK, fine, no jail time, but they can't even pull their charter? Are you kidding?

But the Justice Department wasn't finished handing out Christmas goodies. A little over a week later, Breuer was back in front of the press, giving a cushy deal to another huge international firm, the Swiss bank UBS, which had just admitted to a key role in perhaps the biggest antitrust/price-fixing case in history, the so-called LIBOR scandal, a massive interest-rate­rigging conspiracy involving hundreds of trillions ("trillions," with a "t") of dollars in financial products. While two minor players did face charges, Breuer and the Justice Department worried aloud about global stability as they explained why no criminal charges were being filed against the parent company.

"Our goal here," Breuer said, "is not to destroy a major financial institution."

A reporter at the UBS presser pointed out to Breuer that UBS had already been busted in 2009 in a major tax-evasion case, and asked a sensible question. "This is a bank that has broken the law before," the reporter said. "So why not be tougher?"

"I don't know what tougher means," answered the assistant attorney general.

Also known as the Hong Kong and Shanghai Banking Corporation, HSBC has always been associated with drugs. Founded in 1865, HSBC became the major commercial bank in colonial China after the conclusion of the Second Opium War. If you're rusty in your history of Britain's various wars of Imperial Rape, the Second Opium War was the one where Britain and other European powers basically slaughtered lots of Chinese people until they agreed to legalize the dope trade (much like they had done in the First Opium War, which ended in 1842).

A century and a half later, it appears not much has changed. With its strong on-the-ground presence in many of the various ex-colonial territories in Asia and Africa, and its rich history of cross-cultural moral flexibility, HSBC has a very different international footprint than other Too Big to Fail banks like Wells Fargo or Bank of America. While the American banking behemoths mainly gorged themselves on the toxic residential-mortgage trade that caused the 2008 financial bubble, HSBC took a slightly different path, turning itself into the destination bank for domestic and international scoundrels of every possible persuasion.

Three-time losers doing life in California prisons for street felonies might be surprised to learn that the no-jail settlement Lanny Breuer worked out for HSBC was already the bank's third strike. In fact, as a mortifying 334-page report issued by the Senate Permanent Subcommittee on Investigations last summer made plain, HSBC ignored a truly awesome quantity of official warnings.

In April 2003, with 9/11 still fresh in the minds of American regulators, the Federal Reserve sent HSBC's American subsidiary a cease-and-desist­ letter, ordering it to clean up its act and make a better effort to keep criminals and terrorists from opening accounts at its bank. One of the bank's bigger customers, for instance, was Saudi Arabia's Al Rajhi bank, which had been linked by the CIA and other government agencies to terrorism. According to a document cited in a Senate report, one of the bank's founders, Sulaiman bin Abdul Aziz Al Rajhi, was among 20 early financiers of Al Qaeda, a member of what Osama bin Laden himself apparently called the "Golden Chain." In 2003, the CIA wrote a confidential report about the bank, describing Al Rajhi as a "conduit for extremist finance." In the report, details of which leaked to the public by 2007, the agency noted that Sulaiman Al Rajhi consciously worked to help Islamic "charities" hide their true nature, ordering the bank's board to "explore financial instruments that would allow the bank's charitable contributions to avoid official Saudi scrutiny." (The bank has denied any role in financing extremists.)

Wall Street: From Too Big to Fail to Too Big to Jail

by John Lawrence from the San Diego Free Press

After the financial meltdown of 2008, the Bush administration shoveled tons of money into Wall Street as did the Federal Reserve. TARP, the Troubed Asset Relief Program, was a $700 billion carte blanche gift to Wall Street to prevent an imminent meltdown. This was engineered by Henry Paulson, Bush's Treasury Secretary. But that was miniscule compared to what the Fed ponied up. A lawsuit by Bloomberg News forced the Fed to reveal that it had given $7.7 trillion to banks all over the world to prevent the looming crisis. And the Fed is still at it with its policy of Quantitative Easing (QE). But while the banks have been bailed out and are still being given monthly money cards, they have not been held to account for the behavior that caused the financial crisis in the first place. No banker has gone to jail despite the massive fraud and corruption that they perpetrated and in fact are still perpetrating.

The main, if not the only, cause of the 2008 meltdown was the mortgage market. Mortgages were being given to anyone who could fog a mirror. Waitresses were stating their incomes at $12,000. a month in order to get a mortgage on a $650,000. McMansion. These mortgages were then packaged into securities (CDOs or Collateralized Debt Obligations) by Wall Street and sold to unwary investors like pension funds. When people defaulted on these mortgages, the whole house of cards started to collapse. Everywhere along the chain of events there was corruption. For instance, the mortgage originators like Countrywide were paid a loan origination fee. The more loans they originated the more money they made. Countrywide then sold off portfolios of mortgages to Wall Street so they had no skin in the game if the mortgages failed. But, you might ask, why did Wall Street buy such toxic crap? Didn't they do due diligence on these portfolios? They actually subcontracted the due diligence out to due diligence underwriters who vouched for the soundness of these portfolios. Why would they do that? Because they had a financial incentive to process and approve as many portfolios as possible. This is one of the schemes that makes it hard to prosecute the bankers. At each step of the way there was no central character responsible for the whole shenanigan. It was parceled out to different subcontractors and entities along the way.

Wall Street can claim that it was the due diligence underwriters' fault for not doing proper due diligence. Not only that but these mortgage portfolios were then evaluated by the rating agencies: Standard and Poor's, Moody's and Fitch Group. These rating agencies gave the portfolios triple A ratings even though many of them verged on worthlessness. Again Wall Street can claim that it was the rating agencies' fault. The rating agencies got paid by Wall Street itself so they had every incentive to rate them highly. If they didn't, Wall Street wouldn't have been able to attract investors, and the rating agency that didn't play along would lose business. They were only too happy to play along. Since the fraud and corruption existed on so many levels, it is hard for the US Justice Department to go after any particular banker.

Lloyd Blankfein, CEO of Goldman Sachs, was hauled before a Congressional committee to explain why Goldman had peddled worthless triple A rated crap to unwary pension funds while betting that these portfolios would fail. Goldman ended up making money playing both ends against the middle. The standard answer was that Goldman was a "market maker" and added "liquidity" to the market. So this gave Goldman the right supposedly to have one department peddling worthless CDOs while another department was betting against those same portfolios. But the fact of the matter is that it's hard to hold Lloyd Blankfein accountable since the laws have been so deregulated that hardly any banking activity is illegal these days. The Financial Services Modernization Act of 1999 removed any barriers among investment banks, commercial banks and insurance companies allowing one Wall Street firm to mix and match all three. The Commodity Futures Modernization Act of 2000 allowed the deregulation of derivatives so that casino betting in the financial arena held full sway.

The big banks have been engaged in money laundering, rate rigging, bid rigging and other forms of heinous behavior. Billions of dollars were skimmed from cities all across America by colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion. Banks involved in the bid rigging scheme included Bank of America, JPMorgan Chase, Wells Fargo and UBS. These banks have already paid a total of $673 million in restitution after agreeing to cooperate in the government’s case. In addition many municipalities across America and Europe have been bankrupted by interest rate swaps, another Wall Street invention.

In December 2012 UBS agreed to pay about $1.5 billion to settle charges in the LIBOR interest rate rigging scandal. The Wall Street Journal reported:

"Regulators described the alleged illegality as 'epic in scale,' with dozens of traders and managers in a UBS-led ring of banks and brokers conspiring to skew interest rates to make money on trades. The six-year effort 'seriously compromised' the integrity of financial markets, said the U.S. Commodity Futures Trading Commission."

Traders boasted about their ability to move the rates up or down at will for personal profit. "Think of me when yur on your yacht in Monaco" a trader electronically chatted. Another trader emailed: "Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger."

But UBS will not face any criminal prosecution. Justice Department officials said they decided not to charge the Zurich-based company, fearing such a move could endanger its stability. It seems that, after pouring trillions of dollars into "saving" the banking system and the world wide capitalist economy, why would you want to go and piss it all down the drain by prosecuting these same banks for criminal activity? So they get a fine in civil court that just represents the cost of doing business, a few days profits, and then they go on engaging in the same criminal behavior.

But that's not all folks. There is even more overt criminal activity going on. In December 2012, HSBC was fined $1.9 billion for laundering drug money out of Mexico. It's getting harder to fight the War on Drugs if the banks are in cahoots with the drug kings themselves. But no bankers will go to jail. Jail is reserved for young black men primarily who get caught with an ounce of marijuana in their possession. HSBC has also laundered money for Iran and Libya. It seems that even terrorists need a banker and HSBC was only too willing to comply taking in suitcases of cash through specially designed windows built just for that purpose. In return for overt criminal activity, HSBC gets a slap on the wrist and no criminal prosecution because Eric Holder and the US Justice Department are a bunch of wimps treading on eggshells lest they upset the worldwide criminal capitalist banking system and bring on the collapse of the world economy.

"Shame on the Department of Justice. Shame on them," said Jimmy Gurulé, a former federal prosecutor who teaches law at the University of Notre Dame. "These are actions that facilitated major international drug cartels to continue their operations," he said. "Now, if that doesn't justify criminal prosecution, I can't imagine a case that would."

CPA Practical Advisor reports:

"Since 2009, several European banks have paid heavy settlements related to allegations they moved money for people or companies on the U.S. sanctions list: Switzerland's Credit Suisse, $536 million; British bank Barclays, $298 million; British bank Lloyds, $350 million; Dutch bank ING, $619 million; and the Royal Bank of Scotland, $500 million for alleged money laundering at Dutch bank ABN Amro.

"While those cases involved deals with such countries as Iran, Libya, Cuba and Sudan, the HSBC case was notable for the government's allegation that it also helped launder $881 million in drug-trafficking proceeds for Mexican drug cartels."

In the Savings & Loan scandal of the 1980s, over 1000 bankers went to jail. But the Saving and Loan deal was a paltry undertaking compared to the worldwide criminal enterprise that the global capitalist banking system represents. At the heart of the whole thing are the world's central banks each of which is printing money like crazy trying to debase their currencies. The US Fed's goal is to drive up inflation. What? That encourages people to buy now instead of waiting for later when the prices might go up. The Fed indulges in all sorts of convoluted thinking of this sort. They are giving $85 billion a month in QE (Quantitative Easing) to the big banks in an effort to keep the economy from going into the tank.

The theory is that by keeping interest rates low, people will borrow more money and buy more stuff. A side effect is that the US is able to keep its interest payments on the national debt low. Another side effect is, that because savers are getting practically no interest on their savings accounts, they will invest in the stock market. Hello! The stock market is at all time highs! Since consumption is 70% of GDP, the Fed and the US government desperately need people to keep buying stuff. This will supposedly create jobs and lower the unemployment rate (one of the Fed's mandates) which is still very high by historic standards. But printing money cheapens the value of the dollar.

The cheapening of the dollar will also make US exports more attractive. But since other countries are engaged in the same strategems, the overall denouement is that the world is degenerating into a currency war. The problem is that QE only amounts to another round of gift giving to the big banks. The money isn't trickling down to the average person. If the Fed really wanted to boost the American economy, it would inject money into the bottom of the economy (example, paying off people's mortgages thereby freeing up money for consumption) and let it trickle up instead of the opposite which is not working, but it is against the law to do that. Capitalist rules prevent that from happening. And although the Fed is encouaging them do do it, intelligent consumers are not going to borrow money and go into debt just to purchase a lot of cheap crap made in China in order to keep the economy going. What if consumers revolt? Then the economy goes into the tank.

The state of New York has filed suit against JP Morgan Chase for fraud related to the sale of mortgage backed securities.  Eric Schneiderman, the state's attorney general, seeks an unspecified amount of damages related to billions of dollars in investor losses. The state maintains that JP Morgan's Bear Stearns division should have known that the stuff it was selling was crap. Bank of America agreed recently to pay $2.43 billion to settle claims it misled investors about the acquisition of Merrill Lynch & Co., in the largest shareholder class-action settlement tied to the meltdown. BofA didn't admit wrongdoing.

And homeowners foreclosed on illegally are also filing lawsuits. Many were told that in order to have their mortgages modified they would have to adhere to certain conditions including continuing to make mortgage payments albeit at a reduced rate. After complying with all conditions, many had their homes foreclosed on anyway. The banks had a two track strategy: one department pursued modification while another concurrently pursued foreclosure. The foreclosure guys usually won out because it was more profitable to foreclose than to modify.

States are filing lawsuits against banks because of MERS, the Mortgage Electronic Registration System, claiming that they have been defrauded out of registration fees and that mortgages transferred through MERS are illegal. Louisiana’s lawsuit is being brought under RICO, alleging wire and mail fraud and a scheme to defraud the parishes of their recording fees.

And the beat goes on. Little piddly civil lawsuits with no criminal prosecution instead of one gigantic criminal lawsuit by the US Justice Department. That means no bankers in orange jumpsuits pulling KP duty any time soon. They are free to continue their fraud and corruption because to discontinue it would bring down the whole international banking system.

Upon Reflection: What I Believe

by John Lawrence from the San Diego Free Press

Well the New Year is upon us, and it's time to take stock and see if I can make any sense out of the goings on of the last year and the interaction of reality with my own mind. This is my crack at it.

1. I believe that gun ownership should be a privilege and not a right. The 2nd Amendment was constucted to be similar to the Swiss model in which citizens formed a militia for national defense. There was no standing army. That was the original intent of the framers of the Constitution for exactly the same reason: there was no standing army. Today that rationale is not relevant. Even Switzerland has moved the guns from homes to depots to prevent what little gun violence takes place there.

I don't believe background checks and a database of those with mental problems will solve much. In almost every mass murder, the perpetrators had no prior record of mental health problems although in retrospect everyone agrees that there were mental health problems. In almost every case, the guns were obtained legally. That tells you something which is that it is the proliferation of military type weapons with high capacity magazines that is the problem. These guns should not only be made illegal, but they should be taken off the streets, that is, confiscated or gotten rid of with buyback programs.

Terrorists have only been able to kill 17 people in the US since 9/11, but 88,000 Americans have died in gun violence from 2003 to 2010. Britain, which has very strict gun laws, had 41 gun murders in 2010 while the US had around 10,000. 6,626 Americans have died in the wars in Iraq and Afghanistan. About 3000 died in the tragedy of 9/11. The cost of the wars in Iraq and Afghanistan so far is around $4 trillion. At the same time zero dollars have been spent on the war on gun violence in the US in which about the same number of people die every year as died on 9/11 plus Iraq and Afghanistan (Americans, that is). Does this make any sense? As Pogo said, "We have met the enemy and the enemy is us."

2. I believe there should be a floor on poverty and a ceiling on wealth. For most of the last decade, the percentage of Americans living below the poverty line increased each year, from 12.3 percent in 2006 to 15.1 percent in 2010. In 2011 the official poverty rate was 15 percent, meaning that 46.2 million people live below the poverty line. The Walton family has more wealth than the lower 40% of the American population combined while workers at Wal-Mart subsist on wages so low that they need to supplement their incomes with food stamps and other social services driving up the cost of government.

Much of the wealth that  the upper 1% possesses is used to distrort the political system and was gained fraudulently by those in the financial sector. I wrote this in 2010 on Will Blog For Food:

"Hedge Fund manager John Paulson helped to design the Abacus fund for Goldman Sachs and filled it with a bunch of garbage. This fund was then peddled to unwary investors while Paulson shorted it. As a result, when the garbage in the fund went south, the investors lost $1 billion and Paulson's gamble netted him $3.7 billion. But that isn't even the worst of it. Taxpayers who bailed out the system actually paid Paulson the $3.7 billion - as if he needed it."

John Paulson hasn't been prosecuted for this fraudulent investment scheme and paid taxes on his income at the "carried interest" rate of 15% just like his fellow private equity fund manager, Mitt Romney. He has used some of his ill gotten gains to contribute to conservative causes as has billionaire Sheldon Adelson who has made his money off of seniors gambling away their social security checks.

I don't think anyone needs an income of more than $10 million a year, and a family of four needs an income of at least $40 thousand. These would be my recommended limits, for what they're worth, for the ceiling on wealth and the floor on poverty. Remember anyone earning an income of $10 million is going to store much of that as accumulated wealth which is going to provide a certain percentage return on investment (ROI in plutocrat speak) as unearned income each following year in addition to the $10 million earned (yeah, sure) income.

3. I believe that global warming is happening right now and is a result of human beings polluting the atmosphere with carbon emissions. As the saying goes "Don't shit where you eat" and we are shitting on Mother Earth. Future generations are going to have to eat and breathe here. Europeans and native Americans settled this continent without sending massive amounts of carbon into the atmosphere. We're going to have to relearn how to do the same, and there is not much time to waste without suffering the consequences that we're already starting to suffer.

As the number of billion dollar weather events starts to pile up, we will soon run out of money. We need to divert money from the bloated and wasteful military-industrial complex and spend it on infrastructure redevelopment in order to counteract and protect ourselves from the devastating aftermaths of extreme weather events like SuperStorm Sandy and SuperTyphoon Bopha. As I previously said, we have spent trillions to avenge the deaths of approximately 3000 people while spending hardly anything on gun control or infrastructure hardening. Both of the latter are bigger threats to American security than are the handful of self-proclaimed Al-Quaeda terrorists who have done a trivial amount of damage to the US since 9/11. Yet we spend trillions of dollars on them which mainly goes into the coffers of corrupt politicians and defense contractors. Not to mention the millions of civilians we have killed in Iraq and Afghanistan which guarantees a future generation of terrorists bent on avenging those deaths.

4. I don't believe that good middle class jobs are coming back as we recover from the Great Recession. They were disappearing long before the Great Recession hit. The combination of automating and computerizing manufacturing processes combined with the outsourcing of menial labor combined with the deunionization of the country means that we shouldn't sit around and hold our collective breaths expecting that everyone who has lost a good middle class job is going to get one back as we recover from recession and the unemployment rate gets down to 5%. The jobs that are being created are for the most part minimum wage service sector jobs. Even so-called full employment, if we achieve it, will consist in large part of those kinds of jobs. So what good is full employment as a measure of anything or a goal?

The so-called job creators are really job destroyers and they know that. They are just laughing up their sleeves as they automate and outsource thereby slashing the cost of production and increasing profits while at the same time calling for lower taxes on themselves on the grounds that they are job creators. This makes Wall Street very happy and top management is handsomely rewarded for doing this. As CEO pay soars, jobs are either outsourced or subcontracted to temp agencies who hire non-full time workers at minimal wages to do the heavy lifting. By this means the major corporations take no responsibility for low wages. It's somebody else, a sub-contractor, that's paying the low wages, not them. And a college education is no panacea. Middle aged college degreed folks are being let go, laid off and downsized never to be rehired again. A good job right out of college is no guarantee of continued employment as you become technologically obsolete in about 10 years.

What's the solution? I believe that self-employment is a big part of it. When you are employed by a corporation, you are vulnerable to being laid off for any reason at any time. When you're self employed, you can never be laid off. It may be too late for a lot of people, but young people coming up in school, even those college bound, should learn a trade while in high school that they can fall back on if need be. Most trades that serve the local community cannot and will not be outsourced and are amenable to self employment. The college educated crowd needs to think about what occupations and professions allow them to be self employed and which only allow them to be employees of some corporation. And most corporations don't want you if you've been laid off after the age of 50 when you are most vulnerable and desperately need a job.

I also believe that government has to be the employer of last resort. Corporations are in the business of outsourcing and creating temp jobs. Even startups usually only need employees until they really get rolling, go public and get obsessed with their stock price which means they need to reduce the cost of labor. At that point the job creators seek to creatively destroy American jobs and pocket increased profits.

Well, folks, there you have it in a nutshell. These are some of the topics I will be writing about in 2013. I also like to bring in the San Diego connection as what's happening in the wider world is also very definitely happening here as well. As far as our political system is concerned, my prediction is that Republicans in Congress will obstruct any meaningful legislation whatsoever and put a halt to any initiative President Obama wants to make. Better hope that 2014 brings a return to majorities in both the House and Senate for Democrats and that Obama can manage to get something constructive done for the good of the country in his last two years in office.

Happy New Year to All.

 

British Bank in $340 Million Settlement for Money Laundering for Iran

By JESSICA SILVER-GREENBERG

Published: August 14, 2012 by the New York Times

Standard Chartered, the British bank, has agreed to pay New York’s top banking regulator $340 million to settle claims that it laundered hundreds of billions of dollars in tainted money for Iran and lied to regulators.

Shawn Thew/European Pressphoto Agency

Peter Sands, the chief executive of Standard Chartered, flew to New York to negotiate over the weekend with state regulators.

The agreement is a victory for Benjamin M. Lawsky and his 10-month old agency, the New York Department of Financial Services, which took on the bank alone in charging that it schemed for nearly a decade with Iran to hide from regulators 60,000 transactions worth $250 billion.

Some federal authorities worry the deal has the potential to undercut a sweeping settlement between the bank and federal regulators, including the Federal Reserve and the Treasury Department. They are also investigating Standard Chartered, a 150-year-old bank based in London with operations across the globe.

The $340 million deal is a huge amount for a single state regulator, and it falls near the middle of the collective settlements that the Justice Department and the Manhattan district attorney have reached with other global banks in recent years over money laundering charges, from $619 million with ING bank in June to $298 million with Barclays in 2010.

Standard Chartered has maintained that only $14 million of the $250 billion in transactions violated federal regulations. In a statement announcing the settlement, Mr. Lawsky said, “The parties have agreed that the conduct at issue involved transactions of at least $250 billion.”

The bank said in a regulatory filing Tuesday that “a formal agreement containing the detailed terms of the settlement is expected to be concluded shortly.” Standard Chartered “continues to engage constructively with the other relevant U.S. authorities. The timing of any resolution will be communicated in due course,” the filing said.

After frantic negotiations with Mr. Lawsky’s office, which threatened to revoke the bank’s state license at a hearing scheduled for Wednesday, Standard Chartered made a calculation to settle, in part, to resolve the public relations headache, according to people briefed on the matter.

The agreement ends a weeklong international drama that thrust the upstart regulator into the spotlight and pitted Mr. Lawsky against federal authorities who thought he was overstepping his bounds and British authorities who accused him of tarnishing the reputation of their banks.

The size of the settlement is puzzling to some federal officials, including the Justice Department, because there is still widespread disagreement about the extent of the bank’s wrongdoing, according to regulators briefed on the matter.

In the weeks leading up to Mr. Lawsky’s move against the bank, the Justice Department was on the brink of deciding not to pursue criminal charges, after concluding that virtually all of the transactions with Iran had complied with United States law, current and former authorities said.

Until 2008, federal law allowed foreign banks to transfer money for Iranian clients through their American subsidiaries to another foreign institution. Mr. Lawsky claimed the 60,000 transactions occurred from January 2001 through 2007, as United States authorities suspected Iranians of using their banks to finance terrorism and nuclear weapons development.

Standard Chartered maintains that “99.9 percent” of the transactions under scrutiny involved legitimate Iranian banks and corporations and that none of the payments had anything to do with supporting terrorist activities. Because the bank did not properly report the transactions that had been routed through its New York branch, Mr. Lawsky’s office has said it was impossible to know how the money was used by the Iranians.

Mr. Lawsky based his case, in large part, on claims that the bank had violated state law by masking the identities of its Iranian clients, lying to regulators and thwarting American efforts to detect money laundering.

Particularly difficult for the bank, people with knowledge of the settlement talks said, was a trove of e-mails and memos detailing an elaborate strategy devised by the bank’s executives. An e-mail from a lawyer to bank executives in 2001 said that payment instructions for Iranian clients “should not identify the client or the purpose of the payment,” according Mr. Lawsky’s order.

One Iranian client was told to use “NO NAME GIVEN” in paperwork to transfer money, to escape scrutiny and “not appear to N.Y. to have come from an Iranian bank,” according to a 2003 e-mail from a bank official cited in the order.

In 2006, according to the order, the bank’s chief executive for the Americas wrote his bosses in London that the transactions with Iran had “the potential to cause very serious or even catastrophic reputational damage to the group.”

While violating the spirit of the law, the stripping of data that identified Iranian clients was not typically illegal until 2008 because foreign banks didn’t have to provide much information to their American units as long as they had thoroughly scoured the transactions for suspicious activity.

For Standard Chartered, the settlement signals a strategic shift. Last week, it said it “strongly rejects the position and portrayal of facts” by the agency.

The settlement is far more than the $5 million that the bank had been willing to pay to settle the case earlier this year, people with knowledge of the case said.

Even so, “it’s a small number to pay for the privilege of continuing to do billions of dollars of business through its New York branch,” said Sarah Jane Hughes, a banking law professor at the Indiana University Maurer School of Law.

Gov. Andrew M. Cuomo of New York lauded the Department of Financial Services, which was formed last year through a merger of existing banking and insurance departments. He said in a statement that the “result demonstrates the effectiveness and leadership” of the agency “and I commend the state Legislature for creating a modern regulator for today’s financial marketplace.”

The $340 million will go entirely to Mr. Lawsky’s department and then into the state government’s general fund.

Over the weekend, Standard Chartered worked closely with Mr. Lawsky’s office to hash out some kind of agreement, with the bank’s chief executive, Peter Sands, flying to New York from London early this week.

Mr. Lawsky has been unapologetic in his approach to the bank, even while weathering some criticism for going on the offensive against the bank on his own rather than moving in concert with other regulators.

The bank said that in 2010 it voluntarily turned over to several United States regulators a battery of e-mails and other internal bank documents detailing its dealings with Iran. But Mr. Lawsky felt he couldn’t wait any longer for federal regulators after an examination by his office revealed persistent failures in its compliance with bank secrecy and money-laundering laws, according to people with knowledge of the review.

As part of the settlement, the bank will install a monitor for at least two years to vet the bank’s money-laundering controls and put in permanent officials who will audit the bank’s internal procedures.

The Man Who Invented “Too Big to Fail” Banks Finally Recants. Will Obama or Romney Follow?

by Robert Reich

Wednesday, July 25, 2012

I’m in Alaska, amid moose and bear, trying to steal some time away from the absurdities of American politics and economics. But even at this remote distance I caught wind of Sanford Weill’s proposal this morning on CNBC that big banks be broken up in order to shield taxpayers from the consequences of their losses. Forget the bear and moose for a moment. This is big game. 

If any single person is responsible for Wall Street banks becoming too big to fail it’s Sandy Weill. In 1998 he created the financial powerhouse Citigroup by combining Traveler’s Insurance and Citibank. To cash in on the combination, Weill then successfully lobbied the Clinton administration to repeal the Glass-Steagall Act – the Depression-era law that separated commercial from investment banking. And he hired my former colleague Bob Rubin, then Clinton’s Secretary of the Treasury, to oversee his new empire.

Weill created the business model that Wall Street uses to this day — unleashing traders to make big, risky bets with other peoples’ money that deliver gigantic bonuses when they turn out well and cost taxpayers dearly when they don’t. And Weill made a fortune – as did all the other executives and traders. JPMorgan and Bank of America soon followed Weill’s example with their own mega-deals, and their bonus pools exploded as well.

Citigroup was bailed out in 2008, as was much of the rest of the Street, but that didn’t alter the business model in any fundamental way. The Street neutered the Dodd-Frank act that was supposed to stop the gambling. JPMorgan, headed by one of Weill’s protégés, Jamie Dimon, just lost $5.8 billion on some risky bets. Dimon continues to claim that giant banks like his can be managed so as to avoid any risk to taxpayers.

Sandy Weill has finally seen the light. It’s a bit late in the day, but, hey, he’s already cashed in. You and I and millions of others in the United States and elsewhere around the world are still paying the price.

What’s the betting that one of the presidential candidates will take up Weill’s proposal?

 

 

From an Unlikely Source, a Serious Challenge to Wall Street

Published on Saturday, July 21, 2012 by Rolling Stone

by Matt Taibbi

Something very interesting is happening.

There’s been so much corruption on Wall Street in recent years, and the federal government has appeared to be so deeply complicit in many of the problems, that many people have experienced something very like despair over the question of what to do about it all.A foreclosed home in Miami, Florida. Joe Raedle/Getty Images

But there’s something brewing that looks like it might be a blueprint to effectively take on Wall Street: a plan to allow local governments to take on the problem of neighborhoods blighted by toxic home loans and foreclosures through the use of eminent domain. I can't speak for how well the program will work, but it's certaily been effective in scaring the hell out of Wall Street.

Under the proposal, towns would essentially be seizing and condemning the man-made mess resulting from the housing bubble. Cooked up by a small group of businessmen and ex-venture capitalists, the audacious idea falls under the category of "That’s so crazy, it just might work!" One of the plan’s originators described it to me as a "four-bank pool shot."

Here’s how the New York Times described it in an article from earlier this week entitled, "California County Weighs Drastic Plan to Aid Homeowners":

Desperate for a way out of a housing collapse that has crippled the region, officials in San Bernardino County … are exploring a drastic option — using eminent domain to buy up mortgages for homes that are underwater.

Then, the idea goes, the county could cut the mortgages to the current value of the homes and resell the mortgages to a private investment firm, which would allow homeowners to lower their monthly payments and hang onto their property.

I’ve been following this story for months now – I was tipped off that this was coming earlier this past spring – and in the time since I’ve become more convinced the idea might actually work, thanks mainly to the extremely lucky accident that the plan doesn’t require the permission of anyone up in the political Olympus.

Cities and towns won’t need to ask for an act of a bank-subsidized congress to do this, and they won’t need a federal judge to sign off on any settlement. They can just do it. In the Death Star of America’s financial oligarchy, the ability of local governments to use eminent domain to seize toxic debt might be the one structural flaw big enough for the rebel alliance to fly through.

The plan only makes sense in the context of America’s overall economic paralysis. Right now the economy is stuck in a standstill, largely because of the housing bubble. Five or six or ten years ago, when Wall Street was cranking out trillions of dollars of cheap home loans so that they could later be chopped up, pooled, and sold to unsuspecting investors in the form of high-grade securitized bonds, millions of ordinary people jumped on the housing comet, buying big houses for big money.

The problem is, if you bought a house for $300,000 then, it might be worth $200,000 now. When you’re $100,000 in debt, you’re not rushing out to buy washing machines, new cars, new DVD players. As Paul Krugman put it in his column today:

There’s no mystery about the reasons the economic recovery has been so weak. Housing is still depressed in the aftermath of a huge bubble, and consumer demand is being held back by the high levels of household debt that are the legacy of that bubble.

Then there’s the other problem. Even if you manage to keep making your payments on your house, your neighbor might not. Whoever used to live next door has left after a foreclosure: there are squatters building a meth lab in the basement now. Two more houses are being boarded up down the street. So now the value of your house is getting lower and lower every day. No matter how fast you make your payments, your debt situation is still going to be moving in the wrong direction.

Instead of letting everyone be slowly ground into dust under the weight of all of that debt, the idea behind the use of eminent domain is to pull the Band-Aid off all at once.

The plan is being put forward by a company called Mortgage Resolution Partners, run by a venture capitalist named Steven Gluckstern. MRP absolutely has a profit motive in the plan, and much is likely to be made of that in the press as this story develops. But I doubt this ends up being entirely about money.

“What happened is, a bunch of us got together and asked ourselves what a fix of the housing/foreclosure problem would look like,” Gluckstern. “Then we asked, is there a way to fix it and make money, too. I mean, we're businessmen. Obviously, if there wasn’t a financial motive for anybody, it wouldn’t happen.”

Here’s how it works: MRP helps raise the capital a town or a county would need to essentially “buy” seized home loans from the banks and the bondholders (remember, to use eminent domain to seize property, governments must give the owners “reasonable compensation,” often interpreted as fair current market value).

Once the town or county seizes the loan, it would then be owned by a legal entity set up by the local government – San Bernardino, for instance, has set up a JPA, or Joint Powers Authority, to manage the loans.

At that point, the JPA is simply the new owner of the loan. It would then approach the homeowner with a choice. If, for some crazy reason, the homeowner likes the current situation, he can simply keep making his same inflated payments to the JPA. Not that this is likely, but the idea here is that nobody would force homeowners to do anything.

On the other hand, the town can also offer to help the homeowner find new financing. In conjunction with companies like MRP (and the copycat firms like it that would inevitably spring up), the counties and towns would arrange for private lenders to enter the picture, and help homeowners essentially buy back his own house, only at a current market price. Just like that, the homeowner is no longer underwater and threatened with foreclosure.

In order to make MRP work, Gluckstern and his partners needed to find local officials with enough stones to try the audacious plan. With so many regions in such desperate straits thanks to the housing mess, that turned out to be not as hard as perhaps might have been expected.

First in line was San Bernardino County in California, not coincidentally located at ground zero of a subprime bubble blown to gigantic proportions by Southern Californian mortgage giants like Countrywide and Long Beach. San Bernardino is more or less a poster child for the mortgage crisis; more than half of its homeowners are underwater on their homes, unemployment is past 12%, and the county recently had to file for bankruptcy.

It’s not surprising, then, that local officials like Acquietta Warren, mayor of the city of Fontana, were receptive to the eminent-domain plan.

“Sooner or later,” Warren told the New York Times, “all these people who are upside down on their homes are just going to leave the keys out on the door and say forget it. This was supposed to be the promised land, and now we have people waiting in some kind of hellish purgatory.”

San Bernardino County officials, along with two of its bigger cities (Fontana and Ontario), have set up the legal mechanisms needed to condemn and seize home loans, but the details of the plan haven’t been completely worked out yet. Still, officials say about 20,000 homeowners in San Bernardino would be eligible for the program; how many will get to use it is unknown.

In the meantime, other counties in other parts of the country are considering the plan. MRP has been courting local officials in Nevada, Florida, and in parts of the Northeast. In New York, officials in Suffolk County on Long Island, where 10% of homes are underwater, are seriously considering the plan.

The role of MRP and the presence of businessmen like Gluckstern in this whole gambit is going to tempt some reporters to pitch this story as a purely financial story, and certainly it does have interest as a business headline.

But MRP’s role aside, this is also a compelling political story with potentially revolutionary consequences. If this gambit actually goes forward, it will inevitably force a powerful response both from Wall Street and from its allies in federal government, setting up a cage-match showdown between lower Manhattan and, well, everywhere else in America. In fact, the first salvoes in that battle have already been fired.

For instance, the Wall Street trade association, SIFMA, this past week issued a denunciation of the eminent domain plan that includes a promise of a legal challenge. “We believe the MRP proposal is unlikely to survive a judicial challenge,” one of SIFMA’s lawyers wrote. Other trade groups are lining up to describe the tactic as illegal or "unconstitutional."

More insidiously, however, SIFMA pledged that its members will not allow future home loans originated in counties that use the eminent domain tactic to participate in something called the To-Be-Announced (TBA) markets for mortgage-backed securities. Explaining this would require a sharp detour into a muck of inside-baseball mortgage terminology, but the long and the short of it is that SIFMA is promising to make it difficult for any community that tries this tactic to obtain private mortgage financing in the future.

Essentially, SIFMA is promising a kind of collusive financial lockout of uncooperative communities. The threat would appear to be a high-handed form of redlining that raises serious antitrust questions, but in a way, that kind of response is to be expected.

Ultimately, the MRP tactic will be a fascinating test case to see exactly how much local self-determination will be allowed by the centralized financial oligarchy and its allies in the federal government.

If through boycotts, collusion, federal pressure and other forms of encirclement, local governments can be stripped of their right to condemn blighted property, we’ll know that the guts have been cut out of the very idea of regional self-rule. It will be fascinating to watch. At the very least, this story has the potential to be the first true open, pitched battle between Wall Street and the homeowners and communities who have been the primary victims of financial corruption.

Tune in for more on this front soon.

Editor's note: Readers interested in learning more about this would do well to read North Carolina congressman Brad Miller's piece on this in American Banker. Miller is not necessarily a proponent of the exact mechanism proposed by MRP, but he is intrigued by the general idea of using eminent domain to address the blighted-loan problem, and seems particularly interested in the strategic possibilities of addressing the problem at the local level. He writes:

The biggest banks have used their political power in Washington to defeat any effort that would effectively reduce foreclosures, such as allowing judicial modification of mortgages in bankruptcy, allowing a federal agency to use eminent domain to buy mortgages, or providing teeth for the chronically ineffective Home Affordable Modification Program, because those efforts would also require the immediate recognition of losses on mortgages.

But Wall Street's power in Washington may be as useless in defeating a proposal in San Bernardino County as strategic nuclear weapons are in fighting an insurgency. No wonder Wall Street is panicked.

Also, here's a piece Miller wrote a couple of years ago in The New Republic suggesting the use of eminent domain through the use of a public vehicle similar to FDR's Home Owners' Loan Corporation, or HOLC.

Again, there's going to be a lot of heated discussion about this, and it's sure to get ugly in the near future. This idea will be portrayed as radical and unrealistic, but in reality it's neither terribly radical nor even all that new. What it is, more than anything else, is uncomfortable. Anyway, more on this to come.

© 2012 Rolling Stone

As Rolling Stone’s chief political reporter, Matt Taibbi's predecessors include the likes of journalistic giants Hunter S. Thompson and P.J. O'Rourke. Taibbi's 2004 campaign journal Spanking the Donkey cemented his status as an incisive, irreverent, zero-bullshit reporter. His books include Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History, The Great Derangement: A Terrifying True Story of War, Politics, and Religion, Smells Like Dead Elephants: Dispatches from a Rotting Empire.

Titanic Banks Hit LIBOR Iceberg: Will Lawsuits Sink the Ship?

by Ellen Brown

from Nation of Change, July 22, 2012

At one time, calling the large multinational banks a “cartel” branded you as a conspiracy theorist.   Today the banking giants are being called that and worse, not just in the major media but in court documents intended to prove the allegations as facts.  Charges include racketeering (organized crime under the U.S. Racketeer Influenced and Corrupt Organizations Act or RICO), antitrust violations, wire fraud, bid-rigging, and price-fixing.  Damning charges have already been proven, and major damages and penalties assessed.  Conspiracy theory has become established fact.

In an article in the July 3rd Guardian titled “Private Banks Have Failed – We Need a Public Solution”, Seumas Milne writes of the LIBOR rate-rigging scandal admitted to by Barclays Bank:

It's already clear that the rate rigging, which depends on collusion, goes far beyond Barclays, and indeed the City of London. This is one of multiple scams that have become endemic in a disastrously deregulated system with inbuilt incentives for cartels to manipulate the core price of finance. 

. . . It could of course have happened only in a private-dominated financial sector, and makes a nonsense of the bankrupt free-market ideology that still holds sway in public life.

. . . A crucial part of the explanation is the unmuzzled political and economic power of the City. . . . Finance has usurped democracy. 

Bid-rigging and Rate-rigging

Bid-rigging was the subject of U.S. v. Carollo, Goldberg and Grimm, a ten-year suit in which the U.S. Department of Justice obtained a judgment on May 11 against three GE Capital employees.  Billions of dollars were skimmed from cities all across America by colluding to rig the public bids on municipal bonds, a business worth $3.7 trillion.  Other banks involved in the bidding scheme included Bank of America, JPMorgan Chase, Wells Fargo and UBS.  These banks have already paid a total of $673 million in restitution after agreeing to cooperate in the government’s case.  

Hot on the heels of the Carollo decision came the LIBOR scandal, involving collusion to rig the inter-bank interest rate that affects $500 trillion worth of contracts, financial instruments, mortgages and loans.  Barclays Bank admitted to regulators in June that it tried to manipulate LIBOR before and during the financial crisis in 2008.  It said that other banks were doing the same.  Barclays paid $450 million to settle the charges.  

The U. S. Commodities Futures Trading Commission said in a press release that Barclays Bank “pervasively” reported fictitious rates rather than actual rates; that it asked other big banks to assist, and helped them to assist; and that Barclays did so “to benefit the Bank’s derivatives trading positions” and “to protect Barclays’ reputation from negative market and media perceptions concerning Barclays’ financial condition.” 

After resigning, top executives at Barclays promptly implicated both the Bank of England and the Federal Reserve.  The upshot is that the biggest banks and their protector central banks engaged in conspiracies to manipulate the most important market interest rates globally, along with the exchange rates propping up the U.S. dollar.

CFTC did not charge Barclays with a crime or require restitution to victims.  But Barclays’ activities with the other banks appear to be criminal racketeering under federal RICO statutes, which authorize victims to recover treble damages; and class action RICO suits by victims are expected.

The blow to the banking defendants could be crippling.  RICO laws, which carry treble damages, have taken down the Gambino crime family, the Genovese crime family, Hell’s Angels, and the Latin Kings.

The Payoff: Not in Interest But on Interest Rate Swaps

Bank defenders say no one was hurt.  Banks make their money from interest on loans, and the rigged rates were actually LOWER than the real rates, REDUCING bank profits. 

That may be true for smaller local banks, which do make most of their money from local lending; but these local banks were not among the 16 mega-banks setting LIBOR rates.  Only three of the rate-setting banks were U.S.banks—JPMorgan, Citibank and Bank of America—and they slashed their local lending after the 2008 crisis.  In the following three years, the four largest U.S. banks—BOA, Citi, JPM and Wells Fargo—cut back on small business lending by a full 53 percent. The two largest—BOA and Citi—cut back on local lending by 94 percent and 64 percent, respectively.  

Their profits now come largely from derivatives.  Today, 96% of derivatives are held by just four banks—JPM, Citi, BOA and Goldman Sachs—and the LIBOR scam significantly boosted their profits on these bets.  Interest-rate swaps compose fully 82 percent of the derivatives trade.  The Bank for International Settlements reports a notional amount outstanding as of June 2009 of $342 trillion.  JPM—the king of the derivatives game—revealed in February 2012 that it had cleared $1.4 billion in revenue trading interest-rate swaps in 2011, making them one of the bank's biggest sources of profit.  

The losers have been local governments, hospitals, universities and other nonprofits.  For more than a decade, banks and insurance companies convinced them that interest-rate swaps would lower interest rates on bonds sold for public projects such as roads, bridges and schools. 

The swaps are complicated and come in various forms; but in the most common form, counter party A (a city, hospital, etc.) pays a fixed interest rate to counter party B (the bank), while receiving a floating rate indexed to LIBOR or another reference rate.  The swaps were entered into to insure against a rise in interest rates; but instead, interest rates fell to historically low levels.  

Defenders say “a deal is a deal;” the victims are just suffering from buyer’s remorse.  But while that might be a good defense if interest rates had risen or fallen naturally in response to demand, this was a deliberate, manipulated move by the Fed acting to save the banks from their own folly; and the rate-setting banks colluded in that move.  The victims bet against the house, and the house rigged the game.

 

Lawsuits Brewing

State and local officials across the country are now meeting to determine their damages from interest rate swaps, which are held by about three-fourths of America’s major cities.  Damages from LIBOR rate-rigging are being investigated by Massachusetts Attorney General Martha Coakley, New York Attorney General Eric Schneiderman, officers at CalPERS (California’s public pension fund, the nation’s largest), and hundreds of hospitals.   

One victim that is fighting back is the city of Oakland, California.  On July 3, the Oakland City Council unanimously passed a motion to negotiate a termination without fees or penalties of its interest rate swap with Goldman Sachs.  If Goldman refuses, Oakland will boycott doing future business with the investment bank.  Jane Brunner, who introduced the motion, says ending the agreement could save Oakland $4 million a year, up to a total of $15.57 million—money that could be used for additional city services and school programs.  Thousands of cities and other public agencies hold similar toxic interest rate swaps, so following Oakland’s lead could save taxpayers billions of dollars.

What about suing Goldman directly for damages?  One problem is that Goldman was not one of the 16 banks setting LIBOR rates.  But victims could have a claim for unjust enrichment and restitution, even without proving specific intent: 

Unjust enrichmentis a legal term denoting a particular type of causative event in which one party is unjustly enriched at the expense of another, and an obligation to make restitution arises, regardless of liability for wrongdoing. . . . [It is a] general equitable principle that a person should not profit at another's expense and therefore should make restitution for the reasonable value of any property, services, or other benefits that have been unfairly received and retained. 

Goldman was clearly unjustly enriched by the collusion of its banking colleagues and the Fed, and restitution is equitable and proper. 

RICO Claims on Behalf of Local Banks

Not just local governments but local banks are seeking to recover damages for the LIBOR scam.  In May 2012, the Community Bank & Trust of Sheboygan, Wisconsin, filed a RICO lawsuit involving mega-bank manipulation of interest rates, naming Bank of America, JPMorgan Chase, Citigroup, and others.  The suit was filed as a class action to encourage other local, independent banks to join in.  On July 12, the suit was consolidated with three other LIBOR class action suits charging violation of the anti-trust laws.

The Sheboygan bank claims that the LIBOR rigging cost the bank $64,000 in interest income on $8 million in floating-rate loans in 2008.  Multiplied by 7,000 U.S. community banks over 4 years, the damages could be nearly $2 billion just for the community banks.  Trebling that under RICO would be $6 billion. 

RICO Suits Against Banking Partners of MERS

Then there are the MERS lawsuits.  In the State of Louisiana, 30 judges representing 30 parishes are suing 17 colluding banks under RICO, stating that the Mortgage Electronic Registration System (MERS) is a scheme set up to illegally defraud the government of transfer fees, and that mortgages transferred through MERS are illegal.  A number of courts have held that separating the promissory note from the mortgage—which the MERS scheme does—breaks the chain of title and voids the transfer. 

Several states have already sued MERS and their bank partners, claiming millions of dollars in unpaid recording fees and other damages.  These claims have been supported by numerous studies, including one asserting that MERS has irreparably damaged title records nationwide and is at the core of the housing crisis.  What distinguishes Louisiana’s lawsuit is that it is being brought under RICO, alleging wire and mail fraud and a scheme to defraud the parishes of their recording fees.  

Readying the Lifeboats: The Public Bank Solution

Trebling the damages in all these suits could sink the banking Titanic.  As Seumas Milne notes in The Guardian:

Tougher regulation or even a full separation of retail from investment banking will not be enough to shift the City into productive investment, or even prevent the kind of corrupt collusion that has now been exposed between Barclays and other banks. . . . 

Only if the largest banks are broken up, the part-nationalised outfits turned into genuine public investment banks, and new socially owned and regional banks encouraged can finance be made to work for society, rather than the other way round. Private sector banking has spectacularly failed – and we need a democratic public solution.

If the last quarter century of U.S. banking history proves anything, it is that our private banking system turns malignant and feeds off the public when it is deregulated.  It also shows that a parasitic private banking system will NOT be tamed by regulation, as the banks’ control over the money power always allows them to circumvent the rules.  We the People must transparently own and run the nation’s central and regional banks for the good of the nation, or the system will be abused and run for private power and profit as it so clearly is today, bringing our nation to crisis again and again while enriching the few.

 

How Wall Street and LIBOR Are Bankrupting California Cities

by John Lawrence

 

We blogged earlier about how traders from JP Morgan Chase and Goldman Sachs descended on European cities such as Casino, Italy and even nunneries selling them interest rate swaps.. Interest rate swaps were also responsible for bankrupting Jefferson County, the county seat of Birmingham, Alabama. Now the same big banks are bankrupting California cities. Stockton, San Bernadino and Mammoth Lakes have already gone down. Oakland is fighting Goldman for its very life.

But what does this have to do with the LIBOR scandal, you say? A lot, it turns out. LIBOR stands for the London Interbank Offered Rate, a benchmark that most other interest rates are tied to including interest rate swaps, the very derivative financial instruments that are now bankrupting California cities. The LIBOR scandal has failed to attract the interest of many Americans because it's so "over there" in London. What does that have to do with us here in the US? The same interest rate swaps that JP Morgan Chase sold to nunneries in Europe, they've sold to Stockton and San Bernadino and Oakland and many other US cities, school districts, hospitals and perhaps even to a few US nunneries.

It has recently come to light that the LIBOR has been fraudulently manipulated by London based Barclays bank and possibly quite a few others. CEO of Barclays, Bob Diamond, has been forced to resign and Barclays has had to pay a $456 million penalty. Diamond (unlike his US counterpart, Jamey Dimon, of JP Morgan Chase who sports Presidential cuff links) has had to eat humble pie in front of the English Parliament. What this means is that interest rates for credit cards, mortgages, student loans and almost every other kind of loan imaginable including interest rate swaps have been fraudulently set for years. A trader at Barclays petitioned a submitter, whose job it is to report accurately on the interest rate, to lower the LIBOR on a certain day so that he could make a killing on his Credit Default Swap, a bet that the LIBOR would go down on that day. When it did and the trader cashed out, he phoned up the submitter and said, "Dude. I owe you big time! Come over one day after work and I'm opening a bottle of Bollinger."

It's too late for Stockton, now that it's surpassed Birmingham as the nation's largest municipal bankruptcy, and for San Bernadino, but Oakland is fighting back demanding that Goldman terminate the interest rate swap deal without penalties. Recall that Casino, Italy took JP Morgan Chase to court and eventually won a settlement of a half million euros.  Oakland entered into an interest rate swap with Goldman in 1997. They convinced Oakland officials that it would protect taxpayers against the possibility that interest rates would rise on variable rate bonds that the city planned to issue the next year. Oakland's deal with Goldman Sachs converted floating rates on $187 million of bond debt into a fixed 5.6 percent. If the interest rate tied to the benchmark LIBOR went below 5.6%, then Oakland had to pay Goldman, and if it went above 5.6% Goldman had to pay Oakland. Since then, however, the Federal Reserve has kept interest rates near zero so Goldman had made out like a bandit and Oakland has had to pay through the nose taking money away from teachers, firefighters, policemen and garbage workers and funneling it to Goldman. This collapse in city finances is bankrupting the city. If rates stay artificially depressed due to the Federal Reserve's decisions, Oakland will owe Goldman Sachs another $20 million between now and 2021. That's on top of the $26 million the city has already paid.

In all fairness Goldman would say that nobody forced the city of Oakland to enter into the interest rate swap. Oakland made a bet that interest rates would rise and it lost. It's as simple as that. However, Oakland wasn't counting on manipulation of interest rates by the Federal Reserve and by the LIBOR so the deal sucks all the way around. In fact it stinks to high heaven. Leaders of some of Oakland's largest churches are uniting with community organizers, Decolonize Oakland, and Occupy Oakland activists to focus on how "predatory" banks are draining Oakland's budget and causing cuts to vital city services. Oakland can get out of the deal with Goldman by paying a $16 million penalty, but that seems unfair to Oakland's leaders. They say that Goldman got bailed out by the TARP while government money has failed to bail out Oakland. Wall Street got bailed out. Cities got sold out. Federal policies keeping interest rates low are resulting in extracting wealth from cities and transferring it to Wall Street.

On top of that the state of California is taking monies back from cities' Redevelopment Agencies to fund its own budget deficits. A controversial new law terminates all redevelopment agencies and authorizes the seizure of $1.7 billion of their property tax revenue to alleviate the state's own budget deficit. Oakland, however, uses redevelopment money to cover at least some portion of city workers’ pay. Mayors and city councilmembers who oversee redevelopment projects may receive part of their salary from the agency. Funding police services is also consistent with redevelopment law as long as those services are used to mitigate gang activity, graffiti abatement and other causes of community blight. The Oakland Redevelopment Agency has funded full time police officers for five years. With the state clawing back Redevelopment Agency funds and property taxes, city workers including police officers are likely to be laid off.

What's happening in Oakland and many other US cities is similar to what's happening in Greece and all over the world. This is from Occupy Oakland Media:

"The banking deception hits close to home, as Oakland and San Francisco pay millions of extra dollars annually in inflated interest payments to Goldman Sachs and JP Morgan while cutting funding for education, after-school programs, healthcare and infrastructure. Oakland will pay nearly half the amount of its budget deficit to private banks over the next few years because of high interest rate obligations stemming from interest-rate swaps with banks such as Goldman Sachs. This is tantamount to redistribution of wealth from the poorest people in Oakland who will give up education and healthcare to millionaire bankers.

"This has been happening in states all over the country says economist Michael Hudson, “Because what’s happening in Greece is a dress rehearsal for what’s going on in the United States. … What’s happening in Greece in the last week is exactly what’s happened in Minnesota with the close-down of government. And the demands of privatization – thatGreece sell off its roads, its land, its port authority, its water and sewer – is just what Illinois’s been doing, what Chicago’s been doing, what Minnesota’s been told to do, and what American cities are trying to do.

"What if the United States had bailed out the states instead of the multi-national banks? We could have retained funding for education, infrastructure and social programs that could have stimulated local economies and kept people in their homes, where the majority of the people’s wealth is held, since the banks that would have foreclosed upon them would have been stuck in bankruptcy court."

So to recapitulate, California cities are being bankrupted by Wall Street largely due to interest rate swaps which are tied to the LIBOR which we now know has been fraudulently manipulated by the big banks on Wall Street and in London. The result is austerity for the people of Oakland just as it has been for the people of Greece. LIBOR, the rate at which banks borrow from one another, is the basis for roughly $800 trillion worth of loans, financial instruments and derivatives including interest rate swaps. When banks manipulate LIBOR rates lower, they are borrowing money for less while their counterparties in interest rate swap contracts like the City of Oakland are stuck paying them much higher rates.

 

 

This Global Financial Fraud and Its Gatekeepers

Published on Sunday, July 15, 2012 by The Guardian/UK

The media's 'bad apple' thesis no longer works. We're seeing systemic corruption in banking – and systemic collusion

by Naomi Wolf

Last fall, I argued that the violent reaction to Occupy and other protests around the world had to do with the 1%ers' fear of the rank and file exposing massive fraud if they ever managed get their hands on the books. At that time, I had no evidence of this motivation beyond the fact that financial system reform and increased transparency were at the top of many protesters' list of demands.

But this week presents a sick-making trove of new data that abundantly fills in this hypothesis and confirms this picture. The notion that the entire global financial system is riddled with systemic fraud – and that key players in the gatekeeper roles, both in finance and in government, including regulatory bodies, know it and choose to quietly sustain this reality – is one that would have only recently seemed like the frenzied hypothesis of tinhat-wearers, but this week's headlines make such a conclusion, sadly, inevitable.

The New York Times business section on 12 July shows multiple exposes of systemic fraud throughout banks: banks colluding with other banks in manipulation of interest rates, regulators aware of systemic fraud, and key government officials (at least one banker who became the most key government official) aware of it and colluding as well. Fraud in banks has been understood conventionally and, I would say, messaged as a glitch. As in London Mayor Boris Johnson's full-throated defense of Barclay's leadership last week, bank fraud is portrayed as a case, when it surfaces, of a few "bad apples" gone astray.

In the New York Times business section, we read that the HSBC banking group is being fined up to $1bn, for not preventing money-laundering (a highly profitable activity not to prevent) between 2004 and 2010 – a six years' long "oops". In another article that day, Republican Senator Charles Grassley says of the financial group Peregrine capital: "This is a company that is on top of things." The article goes onto explain that at Peregrine Financial, "regulators discovered about $215m in customer money was missing." Its founder now faces criminal charges. Later, the article mentions that this revelation comes a few months after MF Global "lost" more than $1bn in clients' money.

What is weird is how these reports so consistently describe the activity that led to all this vanishing cash as simple bumbling: "regulators missed the red flag for years." They note that a Peregrine client alerted the firm's primary regulator in 2004 and another raised issues with the regulator five years later – yet "signs of trouble seemingly missed for years", muses the Times headline.

A page later, "Wells Fargo will Settle Mortgage Bias Charges" as that bank agrees to pay $175m in fines resulting from its having – again, very lucratively – charged African-American and Hispanic mortgagees costlier rates on their subprime mortgages than their counterparts who were white and had the same credit scores. Remember, this was a time when "Wall Street firms developed a huge demand for subprime loans that they purchased and bundled into securities for investors, creating financial incentives for lenders to make such loans." So, Wells Fargo was profiting from overcharging minority clients and profiting from products based on the higher-than-average bad loan rate expected. The piece discreetly ends mentioning that a Bank of America lawsuit of $335m and a Sun Trust mortgage settlement of $21m for having engaged is similar kinds of discrimination.

Are all these examples of oversight failure and banking fraud just big ol' mistakes? Are the regulators simply distracted?

The top headline of the day's news sums up why it is not that simple: "Geithner Tried to Curb Bank's Rate Rigging in 2008". The story reports that when Timothy Geithner, at the time he ran the Federal Reserve Bank of New York, learned of "problems" with how interest rates were fixed in London, the financial center at the heart of the Libor Barclays scandal. He let "top British authorities" know of the issues and wrote an email to his counterparts suggesting reforms. Were his actions ethical, or prudent? A possible interpretation of Geithner's action is that he was "covering his ass", without serious expectation of effecting reform of what he knew to be systemic abuse.

And what, in fact, happened? Barclays kept reporting false rates, seeking to boost its profit. Last month, the bank agreed to pay $450m to US and UK authorities for manipulating the Libor and other key benchmarks, upon which great swaths of the economy depended. This manipulation is alleged in numerous lawsuits to have defrauded thousands of bank clients. So Geithner's "warnings came too late, and his efforts did not stop the illegal activity".

And then what happened? Did Geithner, presumably frustrated that his warnings had gone unheeded, call a press conference? No. He stayed silent, as a practice that now looks as if several major banks also perpetrated, continued.

And then what happened? Tim Geithner became Treasury Secretary. At which point, he still did nothing.

It is very hard, looking at the elaborate edifices of fraud that are emerging across the financial system, to ignore the possibility that this kind of silence – "the willingness to not rock the boat" – is simply rewarded by promotion to ever higher positions, ever greater authority. If you learn that rate-rigging and regulatory failures are systemic, but stay quiet, well, perhaps you have shown that you are genuinely reliable and deserve membership of the club.

Whatever motivated Geithner's silence, or that of the "government official" in the emails to Barclays, this much is obvious: the mainstream media need to drop their narratives of "Gosh, another oversight". The financial sector's corruption must be recognized as systemic.

Meanwhile, Britain is sleepwalking in a march toward total email surveillance, even as the US brings forward new proposals to punish whistleblowers by extending the Espionage Act. In an electronic world, evidence of these crimes lasts forever – if people get their hands on the books. In the Libor case, notably, a major crime has not been greeted by much demand at the top for criminal prosecutions. That asymmetry is one of the insurance policies of power. Another is to crack down on citizens' protest.

© Guardian News and Media Limited 2012

Author, social critic, and political activist Naomi Wolf is the author of The New York Times bestseller "The End of America" (Chelsea Green) and, more recently, Give Me Liberty: A Handbook for American Revolutionaries. Wolf’s landmark international bestseller, The Beauty Myth, challenged the cosmetics industry and the marketing of unrealistic standards of beauty, launching a new wave of feminism in the early 1990s.

The Wall Street Scandal of all Scandals

by Robert Reich

Saturday, July 7, 2012

Just when you thought Wall Street couldn’t sink any lower – when its myriad abuses of public trust have already spread a miasma of cynicism over the entire economic system, giving birth to Tea Partiers and Occupiers and all manner of conspiracy theories; when its excesses have already wrought havoc with the lives of millions of Americans, causing taxpayers to shell out billions (of which only a portion has been repaid) even as its top executives are back to making more money than ever; when its vast political power (via campaign contributions) has already eviscerated much of the Dodd-Frank law that was supposed to rein it in, including the so-called “Volker” Rule that was sold as a milder version of the old Glass-Steagall Act that used to separate investment from commercial banking – yes, just when you thought the Street had hit bottom, an even deeper level of public-be-damned greed and corruption is revealed. 

Sit down and hold on to your chair.

What’s the most basic service banks provide? Borrow money and lend it out. You put your savings in a bank to hold in trust, and the bank agrees to pay you interest on it. Or you borrow money from the bank and you agree to pay the bank interest.

How is this interest rate determined? We trust that the banking system is setting today’s rate based on its best guess about the future worth of the money. And we assume that guess is based, in turn, on the cumulative market predictions of countless lenders and borrowers all over the world about the future supply and demand for the dough.

But suppose our assumption is wrong. Suppose the bankers are manipulating the interest rate so they can place bets with the money you lend or repay them – bets that will pay off big for them because they have inside information on what the market is really predicting, which they’re not sharing with you.

That would be a mammoth violation of public trust. And it would amount to a rip-off of almost cosmic proportion – trillions of dollars that you and I and other average people would otherwise have received or saved on our lending and borrowing that have been going instead to the bankers. It would make the other abuses of trust we’ve witnessed look like child’s play by comparison.

Sad to say, there’s reason to believe this has been going on, or something very much like it. This is what the emerging scandal over “Libor” (short for “London interbank offered rate”) is all about.

Libor is the benchmark for trillions of dollars of loans worldwide – mortgage loans, small-business loans, personal loans. It’s compiled by averaging the rates at which the major banks say they borrow.

So far, the scandal has been limited to Barclay’s, a big London-based bank that just paid $453 million to U.S. and British bank regulators, whose top executives have been forced to resign, and whose traders’ emails give a chilling picture of how easily they got their colleagues to rig interest rates in order to make big bucks. (Robert Diamond, Jr., the former Barclay CEO who was forced to resign, said the emails made him “physically ill” – perhaps because they so patently reveal the corruption.)

But Wall Street has almost surely been involved in the same practice, including the usual suspects — JPMorgan Chase, Citigroup, and Bank of America – because every major bank participates in setting the Libor rate, and Barclay’s couldn’t have rigged it without their witting involvement.

In fact, Barclay’s defense has been that every major bank was fixing Libor in the same way, and for the same reason. And Barclays is “cooperating” (i.e., giving damning evidence about other big banks) with the Justice Department and other regulators in order to avoid steeper penalties or criminal prosecutions, so the fireworks have just begun. 

There are really two different Libor scandals. One has to do with a period just before the financial crisis, around 2007, when Barclays and other banks submitted fake Libor rates lower than the banks’ actual borrowing costs in order to disguise how much trouble they were in. This was bad enough. Had the world known then, action might have been taken earlier to diminish the impact of the near financial meltdown of 2008.

But the other scandal is even worse. It involves a more general practice, starting around 2005 and continuing until – who knows? it might still be going on — to rig the Libor in whatever way necessary to assure the banks’ bets on derivatives would be profitable.

This is insider trading on a gigantic scale. It makes the bankers winners and the rest of us – whose money they’ve used for to make their bets – losers and chumps.

What to do about it, other than hope the Justice Department and other regulators impose stiff fines and even criminal penalties, and hold executives responsible?

When it comes to Wall Street and the financial sector in general, most of us suffer outrage fatigue combined with an overwhelming cynicism that nothing will ever be done to stop these abuses because the Street is too powerful. But that fatigue and cynicism are self-fulfilling; nothing will be done if we succumb to them.

The alternative is to be unflagging and unflinching in our demand that Glass-Steagall be reinstituted and the biggest banks be broken up. The question is whether the unfolding Libor scandal will provide enough ammunition and energy to finally get the job done.

Blythe Masters: Inventor of the Financial Weapon of Mass Destruction

by John Lawrence

As a young twenty something ingenue at JP Morgan Chase, Blythe Masters was the inventor of the Credit Default Swap (CDS), the financial instrument responsible for almost destroying the global financial system in 2008. Warren Buffett called CDSs and other derivatives "financial weapons of mass destruction." But exactly what are CDSs and how did they function to almost bring down the entire global banking system? CDSs came about from JP Morgan Chase, Goldman Sachs and other large banks' desire to offload risk and thereby strengthen their balance sheets. They would then be in a position to do more deals due to the fact that they would not have to keep so much collateral on their books to back up their deals. If a loan or bet went south, someone else would be responsible for paying off on the insurance policy, not them. Thus they could increase their profits by doing more and more trades without having to worry about paying off on any of them if anything went awry. That would be some other institution's responsibility. A CDS was an insurance policy. Furthermore, you wouldn't even have to be directly involved as a party or counterparty. You could purchase a "naked" CDS. This is like betting on a horse that you don't own and have no financial stake in or responsibility for.

When the big banks entered the subprime loan market, their problem was "how do we get the rating agencies such as Moody's and Standard and Poor's to rate these securities as anything other than trash and make them more attractive to investors?" First, the subprime loans were bundled together and securitized creating Collateralized Debt Obligations (CDOs). Then they were sold off in tranches (slices) to investors. Blythe Masters' invention circa 1996 enabled them to be rated AAA. How they did it was this. The rating agencies might want to have rated the CDOs BBB or CCC, but the banks said to them "How about if we throw in some insurance that these mortgages won't default? Will that raise the credit rating of this worthless junk?" Sure enough the rating agencies said. So part of the package became a CDS which effectively guaranteed the CDO and got it rated AAA. Investors ate up the product never bothering to look at the underlying worthless mortgages. A AAA rating was good enough for them. After all how could they go wrong with a AAA rated investment product? Then as soon as the deal was done, JP Morgan Chase traded off the CDS to someone else like AIG, for instance. No regulator or anyone else ever bothered to ask if AIG had the assets to back up the risk it had taken on and JP Morgan was free to go on and make other trades and deals since the need to back up any of these deals had just been transferred to some other institution. Without a lot of risk weighing down their balance sheets the big banks were free to make more deals, more trades and higher profits.

Insurance companies are the most highly regulated companies on the planet since it is important to know that an insurance company has the assets to back up the policies it writes. However, no one bothered to check if CDSs, which are essentially insurance products, were backed up by anything and this is what in a nutshell caused the financial deluge of 2008. And the regulatory atmosphere during the Bush administration was that no regulation was good regulation. When subprime mortgages went belly up, the investors tried to redeem their CDSs only to find out that the institutions who had pledged to make them whole didn't have the assets to do so. This is what caused Bear Stearns to throw itself at Tim Geithner's and Ben Bernanke's feet in March of 2008 and beg for mercy. They engineered a takeover of Bear by JP Morgan Chase and to sweeten the deal they gave JP Morgan $30 billion. So they said in effect 'here take $30 billion and Bear Stearns and problem solved'. But the problem was not solved. Treasury Secretary Henry Paulson, a free market guy, was upset that Bear wasn't allowed to go bankrupt because of 'moral hazard'. He thought that banks that had gotten themselves in trouble shouldn't come begging to the government to save them. Moral hazard meant that you had to suffer the consequences of your own decisions even if that meant going bankrupt. You couldn't expect the government to bail you out. Unfortunately, this concept ended up being applied more to average citizens than to the big financial institutions.

What happened next was that Lehman, which also had a large portfolio of CDSs came crying to the government. Paulson said, "No bailout. You guys are on your own." and Lehman promptly went bankrupt. But the dominoes did not stop falling there. AIG had a humungus portfolio of CDSs with not a prayer of a chance of backing them up. The dominoes were falling and the regulators in the government had hardly a clue as to what was happening. Why didn't they know anything or have a plan for dealing with the ensuing catastrophe? Because the CDS market was a dark market. They weren't traded on an exchange. Each deal was a private deal between a party and a counterparty with no one else having a clue as to what was going on. Thus trillions of CDSs accumulated on the books of financial institutions without anyone knowing the total amount or whether or not the institutions were in a position to pay them off if need be.

Here's an example of a dark market. Say you're selling a used car. You'd like to get as much as you can for it and your counterparty would like to pay the least. You, being a used car dealer, and your counterparty being an unsophisticated rube, who do you think is going to get the better end of the deal? The dealer of course. Before the era of Kelly's Blue Book there was a dark market in used car dealing. With the advent of Kelly's Blue Book, the market is no longer dark since the counterparty can look up the value of a used car and know about what he should pay. Similarly, Wall Street traders racked up huge profits because their counterparties didn't know they were being screwed. That is why they don't want CDSs traded on an exchange or any light cast on their activities. It would cut down on the Wall Street trader's profits.

After Lehman failed, the crisis got even worse. So Geithner and Bernanke got together, much to Paulson's chagrin, and said fuck moral hazard, we have to bail out AIG to save the system, and they did to the tune of $180 billion which came as did the $30 billion for Bear Stearns from the Federal Reserve Bank. Note that this all happened during the Bush administration long before Geithner became Treasury Secretary under Obama. Who engineered the takeover of the banks by the government? Who was the big socialist here? Bush and Paulson, free market guys, not Obama. Obama wasn't even in office yet. The next thing was that Bernanke said he could not keep on doing this. Paulson would have to go to the US Congress and demand money for future bailouts, and the result of this was the TARP, the Troubled Asset Relief Program, to the tune of $700 billion. Paulson, the free market guy who believed in letting the chips fall where they may, stuffed $125 billion down the throats of the big banks whether they liked it or not. Many of them did not want to accept the money.

Later after Geithner became Treasury Secretary under Obama, he argued that investors should not have to take the least bit of a haircut. All their bets should be paid off in full. The casino's integrity would have to be preserved at any and all costs or no one would ever bet there again. Quel horreur! So what that amounted to was that if you placed a bet that Lehman was going down and you bought a naked CDS and then sure enough Lehman went down, Geithner argued that that investor should be paid in full regardless of how little he paid to place his bet in the first place or when he placed the bet! Geithner totally pussyfooted around the big banks, but of course people who were being foreclosed on got absolutely no relief whatsoever. Main Street which suffered the most from the banking crisis was left to go it alone (remember moral hazard?) while the banks were being stuffed with cash. No banker had to take a cut in salary or miss a bonus. Wall Street got bailed out. Main Street got sold out. Bankers weren't forced to write down mortgage principles or lower mortgage interest rates. Any writedowns were strictly voluntary so bankers for the most part ignored them. In the final analysis foreclosures were far more profitable. Investors could buy up foreclosed properties on the cheap paying cash and make a killing when prices went up again.

And with all the fuss over TARP, and unbeknownst to the general public, Bernanke's Federal Reserve was still stuffing the banks with cash. A lawsuit by Bloomberg News forced the Fed to reveal that it had given $7.7 trillion to banks all over the world to prevent the looming crisis. No wonder the banks recovered so quickly! This made TARP trivial by comparison. A lot of these bets that were paid in full were on naked CDSs. Anyone could buy a CDS not just a party or counterparty to the original loan, and since these markets were dark, no one knows how many insiders walked off with billions when they knew which way the wind was blowing or how little they paid to place their bets in the first place. Such a one was John Paulson, no relation to the Treasury Secretary. He made $4 billion on one bet. He had Goldman Sachs design a CDO which both he and Goldman knew would fail. Then Paulson bet against it. Goldman's traders enthusiastically talked it up to their clients, er uh, muppets who bought it. Goldman itself bet against its own product. Long story short Paulson made $4 billion which Geithner, of course, demanded that he be paid in toto - no haircut for this sleazy bastard. Now Paulson is using his billions under the Citizens United Ruling of the Supreme Court to donate millions to defeat President Obama and promote right wing policies and politicians. You can thank Tim Geithner for insisting on no haircut for Paulson. Ironically, it was Obama’s Treasury Secretary’s policies that enabled Paulson to pocket the big bucks which he is using to defeat Geithner’s boss!

So what about Blythe Masters who created the CDS when she was a young and pretty twenty something. Her career has gone onward and upward. She still works for JP Morgan Chase. She's the current head of the Global Commodities Department and resides in New York City. She takes no blame for her creation of the Credit Default Swap. She blames the parties and counterparties who made inappropriate use of it. It's their fault not hers. It's faulty execution not the fault of the product itself. She goes blithely along with her life. Masters is Board Chair of the NY Affiliate of the breast cancer charity, Susan G. Komen for the Cure, and a member of the Board of Directors of the National Dance Institute.

Wall Street Quant Alexis Goldstein Joins Occupy Wall Street

by John Lawrence 

also published here and here

Wall Street recruits young, just out of college computer science majors and mathematicians to become "quants" whose skills are used among other things to predict when pension funds are going to make huge trades so that Wall Street can jump in ahead of them and do deals effectively raising the price the pension fund must pay or lowering the profit they might make. One such young twenty something quant was Alexis Goldstein. Goldstein devised trading software for Deutsche Bank and Merrill Lynch. She has divulged some of Wall Street's most closely held cultural secrets such as the phrase "rip the client's face off" which means selling some derivative "solution" to a naive client such as a convent of nuns in Europe at a huge profit to the trader and to Wall Street while convincing the client that it's the best deal they ever made. Sometimes they refer to these clients as "muppets." JP Morgan Chase and Goldman Sachs fanned out all over Europe in the wake of the Commodities Futures Modernization Act of 2000 which legalized derivatives. The legalization of derivatives made it possible to design financial products which shifted the risks and rewards around among different clients, some seeking higher rewards at higher risk and some seeking safety with lower returns and lower risk. Derivatives could be custom designed on the trading floor taking each client's "needs" into account.

Wall Street investment bankers sold derivatives to municipalities, hospitals, convents, school districts and other institutions mainly dealing with unsophisticated people who had no idea of what they were purchasing or what could be the ultimate denouement. They believed the "F9 monkeys" from Wall Street who were nothing more than salesmen making huge commissions by selling junk to unsuspecting rubes. F9 monkeys put in a couple of inputs on their computer and then hit F9. That priced the derivatives for them and then they hit the road. Star traders could make $10-$15 million a year, a heady sum for a young twenty something.

One of the highly touted products was an interest rate swap. The town of Casino near Rome was looking to reduce the 5% interest rate it was paying on its outstanding debt. No problem. An interest rate swap could reduce the interest rate on its debt to say 2%. Little did the town fathers realize that this meant taking on more risk. They swapped from fixed rate to variable rate, from high interest to low interest and back and forth. Some counterparty would always take the other side of the bet. If Casino wanted a lower interest rate with concomitant higher risk, there was always some one or some institution that wanted lower risk and was willing to pay a higher interest rate. All went well for a while until the interest rate Casino's swap was pegged to started to go up. They paid hundreds of thousands more in interest than they bargained for. Casino ended up paying Bear Stearns (now owned by JP Morgan Chase) over a million dollars in interest. They sued and recovered half a million but they are still in the red  More than a thousand municipalities and institutions in Europe bought some type of derivative from Wall Street. Potential losses are estimated to be in the billions. Scores of lawsuits have been filed.

Europe's financial troubles largely originated with the machinations of Wall Street. When countries were trying to join the euro club, they let Goldman Sachs and JP Morgan Chase devise policies of regulatory arbitrage. Regulatory arbitrage refers to using derivatives to fashion ways of getting around the spirit of the law which are still legal. Derivative solutions were a magic formula that made European countries' shaky finances still qualify for entry to the euro zone. The French cooked their books by reclassifying pension obligations. Germany played some tricks with gold. Now the chickens are coming home to roost with the collapse of the euro zone. The problem was letting Goldman Sachs and JP Morgan Chase use regulatory arbitrage to get them into the euro zone in the first place and set them on a debt based course where, no matter what they do, they will still be little more than serfs and vassals indebted to Wall Street in perpetuity.

And it wasn't just in Europe. Birmingham, Alabama, county seat of Jefferson County, had squandered $2 billion on a sewer system in 1996. Many constituents ended up with a sewer system to nowhere and huge monthly bills. County officials were looking to refinance their loan and borrow more money to complete the system without raising rates. In 2002 a former TV personality turned politician, Larry Langford, took charge of Birmingham's finances They wanted to refinance their sewer debt by borrowing another $3 billion.This was no problem for derivatives trader, Charles LeCroy, leading producer at JP Morgan, who devised a "solution" consisting of a series of interest rate swaps. Langford consulted a friend, Birmingham financial adviser Bill Blunt, who said it was a good deal. However, far from solving Jefferson County's financial problems, the intervention of JP Morgan Chase only added to them. In 2008 there was a big change in the markets. The county suddenly owed hundreds of millions of dollars in fees and penalties to its debt holders including JP Morgan. And there was another complication. LeCroy had paid Bill Blunt $3 million in bribes according to Federal prosecutors, and Blunt had given money to Larry Langford. In 2010 Langford went to jail for fifteen years on charges of bribery and fraud. JP Morgan was fined $25 million by the SEC and was ordered to forgive Jefferson County $697 million. Blunt cooperated with Federal prosecutors and got a 4 1/2 year sentence. LeCroy got 3 months. In 2011 Jefferson County filed the largest municipal bankruptcy in American history. Over 100 schools and hospitals as well as state and municipal governments bought swaps. In the last 5 years interest rate swaps have cost American taxpayers $20 billion.

Alexis Goldstein recounted how they talk about "FU money" on Wall St. That was when you had so much money that you could say "Fuck You" to anybody and not have there be any consequences. You are above everything and are immune from the world.

At one point in my career, I was being recruited by a hedge fund. During the recruitment process, one of my interviewers frankly described the fund’s founder—his boss’s boss—as a “spoiled brat billionaire.” My interviewer related a story about a meeting between the hedge fund and an executive at a company the fund wanted to work with. At one point, the visiting executive made statements the fund founder didn’t like. The founder turned to the visitor and said, “So, you came here just to try and fuck me over?” The visitor quickly stormed out in a rage. But the founder wasn’t satisfied just yet. He followed the man out of the room, into the elevator, shouted the entire ride down, and then yelled at him in the lobby until he finally left the building. When the founder came back upstairs to greet his shaken employees, he said, invigorated and beaming, “Wasn’t that fun?!”  This is Wall Street’s equivalent of the American Dream: to earn enough money so that you can behave in a way that makes the very existence of other people irrelevant.

She talks about a culture of admiring cheaters. If you do something against regulations and you only get caught once and pay a fine, it's worth it because the end goal is to make money. Wall Street exemplifies an ethic of profits at any cost. Finally, Goldstein said to herself, "I dont know if I can stay here and still be an ethical person." So the ones who end up remaining on Wall Street are the ones who have the least ethical scruples, the ones like the Enron traders of a decade ago who don't mind screwing Grandma out of her pension.

Many young Wall Street quants and traders who can't take the ridiculous long hours and have moral qualms about ripping their clients' faces off and legally gouging pension funds leave Wall Street after a short sojourn there. Alexis Goldstein now has her own consulting company. She started out teaching Occupy Wall Street about the Glass-Steagall Act, the depression era act that separated commercial from investment banking. That act was dismantled by the Gramm-Leach-Bliley Act of 1999 signed by President Bill Clinton. This made it possible for the combination of investment banks with insurance companies and commercial banks paving the way for collateralized debt obligations, credit default swaps and other sophisticated financial products.

I'll give Alexis the final word:

"It is hard to contrast the joy of community I feel at Occupy Wall Street with the isolation I felt on Wall Street. It’s hard because I cannot think of two more disparate cultures. Wall Street believes in, and practices, a culture of scarcity. This breeds hoarding, distrust, and competition. As near as I can tell, Occupy Wall Street believes in plenty. This breeds sharing, trust, and cooperation. On Wall Street, everyone was my competitor. They’d help me only if it helped them. At Occupy Wall Street, I am offered food, warmth, and support, because it’s the right thing to do, and because joy breeds joy. 

I was privileged enough to make it in the door on Wall Street, and to get bonuses during my time there. But I never felt as fortunate, or joyful, as I did the night after the eviction of Occupy Wall Street from Liberty Square, when we had our first post-raid General Assembly. When the thousands of supporters who filled the park necessitated three waves of the people’s mic. When our voices together echoed not just down the park, but up into the sky as the buildings caused the sound to ricochet off their glass walls. 

And so I say to my friends who still dwell behind the Wall: come join us. The spoils of money can never match the joys of community. When you’re ready, we’ll be here."

How Wall Street Aims to Keep its Global Betting Parlor

by Robert Reich

Tuesday, June 19, 2012

The Commodity Futures Trading Commission, the main regular of derivatives (bets on bets), wants to extend Dodd-Frank regulations to the foreign branches and subsidiaries of Wall Street banks.

Horror of horrors, say the banks.

“If JPMorgan overseas operates under different rules than our foreign competitors,” warned Jamie Dimon, chair and CEO of JP Morgan, Wall Street would lose financial business to the banks of nations with fewer regulations, allowing “Deutsche Bank to make the better deal.”

This is the same Jamie Dimon who chose London as the place to make highly-risky swaps trades that have lost the firm upwards of $2 billion so far – and could leave American taxpayers holding the bag if JPMorgan’s exposure to tottering European banks gets much worse.

Dimon’s foreign affair is itself proof that unless the overseas operations of Wall Street banks are covered by U.S. regulations, giant banks like JPMorgan will just move more of their betting abroad – hiding their wildly-risky bets overseas so U.S. regulators can’t control them. Even now no one knows how badly JPMorgan or any other Wall Street bank will be shaken if major banks in Spain or elsewhere in Europe go down.

Call it the Dimon loophole.

This is the same Jamie Dimon, by the way, who at a financial conference a year ago told Fed chief Ben Bernanke there was no longer any reason to crack down on Wall Street. “Most of the bad actors are gone,” he said. “[O]ff-balance-sheet businesses are virtually obliterated, … money market funds are far more transparent” and “most very exotic derivatives are gone.”

One advantage of being a huge Wall Street bank is you get bailed out by the federal government when you make dumb bets. Another is you can choose where around the world to make the dumb bets, thereby dodging U.S. regulations. It’s a win-win.

Wall Street would like to keep it that way.

For two years now, squadrons of Wall Street lawyers and lobbyists have been pressing the Treasury, Comptroller of the Currency, Commodity Futures Trading Commission, SEC, and the Fed to go easier on the Street for fear that if regulations are too tight, the big banks will be less competitive internationally.

Translated: They’ll move more of their business to London and Frankfurt, where regulations are looser.

Meanwhile, the Street has been warning Europeans that if their financial regulations are too tight, the big banks will move more of their business to the US, where regulations will (they hope) be looser.

After the Basel Committee on Banking Supervision (a global financial regulatory oversight body) came up with a new set of rules to toughen bank capital and liquidity requirements, European officials threatened to get even tougher. They approved a new system of European regulatory bodies with added powers to ban certain financial products or activities in times of market stress.

This prompted Lloyd Blankfein, CEO of Goldman Sachs, to issue — in the words of the Financial Times — “a clear warning that the bank could shift its operations around the world if the regulatory crackdown becomes too tough.”

Blankfein told a European financial conference that while Europe remains of vital importance to Goldman, with less than half of the bank’s business now generated in the U.S., the introduction of “mismatched regulation” across different regions (that is, tougher regulations in Europe than in the U.S.) would tempt banks to search out the cheapest and least intrusive jurisdiction in which to operate.

“Operations can be moved globally and capital can be accessed globally,” he warned.

Someone should remind Dimon and Blankfein that a few years ago they and their colleagues on the Street almost eviscerated the American economy, and that of much of the rest of the world. The Street’s antics required a giant taxpayer-funded bailout. Most Americans are still living with the results, as are millions of Europeans.

Wall Street can’t have it both ways – too big to fail, and also able to make wild bets anywhere around the world.  

If Wall Street banks demand a free rein overseas, the least we should demand is they be broken up here

 

Mitt Romney: Vulture Capitalist

by John Lawrence

I have never heard so many conservative pundits offering gratuitous avuncular advice to Barack Obama that his campaign strategy attacking Bain Capital will not get him anywhere. Joe Scarborough of Morning Joe on msnbc and others have gone on and on about how using Bain Capital against Mitt Romney is not a good strategy. Well, when conservatives offer advice to Barack Obama about what will or will not work for him, Obama better do just the opposite of what they recommend because ultimately they want him to lose. Therefore, he should double down, not abandon, the Bain Capital strategy.

But the problem with Obama is that he starts out praising Romney for being a good businessman (Clinton said he was "superlative"), certainly something no Republican would do for Obama. Then Obama goes on to say that, while Romney created wealth for himself and his investors, the President of the US must be concerned about creating jobs for everyone. This is a roundabout, circuitous route to putting Romney down, a circumlocution, something the Republicans would never do. Instead, they start right our calling Obama a failure. Obama starts out praising Romney, then seeming to walk on eggshells aiming at a scholarly criticism of his activities at Bain. Obama should get right to the point: Romney made his money at Bain by destroying jobs and companies, picking over their bones like the vulture he is.

Bain Capital is a private equity (formerly known as leveraged buyout) firm. They changed the name  to protect the guilty. What they do is to pick the bones of perfectly healthy companies and in many cases drive them into bankruptcy. Here's how it works: they buy a private company with borrowed money (the leverage in leveraged buyout). But they don't buy just any company. They buy one with assets they can strip. It just so happens that they usually buy companies that have a unionized work force. Why? Because a company with a unionized work force usually has a pension fund. Their goal is to get their hands on that pension fund and transfer that asset to Bain Capital. So they borrow the money to buy a company, strip the pension fund and fire all the unionized workers. Then they hire a nonunionized work force to do the same jobs at half the pay. In this way they claim to have made the company "more efficient." Contrary to Republican hogwash, wealthy Individuals like Romney are job destroyers not job creators. Then the vulture capitalists borrow as much money as they can using the company itself as collateral. The next thing they do is to pay Mitt Romney himself, his partners and investors all the borrowed money plus the pension fund. They may also sell off parts of the company or move jobs overseas. Then the company is left to sink or swim on its own. If it can manage to pay all the increased debt Bain Capital put it in, it swims. If not, it sinks and goes bankrupt. In either case, Mitt Romney and Bain Capital have made tens or hundreds of millions of dollars.

President Obama's attack on Romney and Bain Capital has been rather tepid and timid. He essentially says that, while Romney and Bain have done wonderfully well for Bain Capital's investors making them a lot of money, that this is not the skill set required of the President of the United States who has to create jobs for the general public, not make a lot of money for investors. This is typical Barack Obama rationalizing. Instead, he should go for Romney's jugular, something the Republicans including Romney never fail to do, not congratulate him on making money for his investors. First of all, even the companies that have managed to survive the Bain treatment have ended up with a non-union work force working for minimal pay. The fact that Staples and some others are successful companies has nothing to do with it. Staples was never acquired by Bain. They just played a venture capital role there. Romney's role as a vulture capitalist was to identify companies with tangible assets and then to figure out a way to get control of those assets for Bain and its investors. But it gets worse from there.

This is from the LA Times:

Bain Capital had bought a controlling interest in a paper products company called Ampad for $5 million in 1992. Two years later, after Ampad bought a factory in Marion, Ind., the new management team dismissed about 200 workers, slashed salaries and benefits, and hired strikebreakers after the union called a walkout. “We were just fired,” Randy Johnson, a former worker and union officer at the Marion plant, recalled in a telephone interview. “They came in and said, ‘You’re all fired. If you want to work for us, here’s an application.’ We had insurance until the end of the week. That was it. It was brutal.” In October 1994, Johnson and other striking workers drove to Massachusetts to protest Romney’s Senate campaign. “We chased him everywhere,” Johnson recalled. “He took good jobs with benefits, and created low-wage, part-time, no-benefit jobs. That’s what he was creating with his investments.”

The Republicans like to point out how Solyndra, which was invested in by Obama's administration and then went bankrupt, was a huge flop. No matter how many successes the Obama administration has had, Republicans will characterize the whole program as a failure because of the failure of a small part of it. They don't mention the other successes like saving General Motors. By the same token Obama should talk about Ampad, GST Steel, Aventis and other companies whose bones have been picked by Romney and Bain and ignore any successes Romney and Bain might have had.

This is from Rolling Stone:

And let's take a look at the record specifically of Bain Capital, which Romney owned from 1992 to 2001. • 1988: Bain put $10 million down to buy Stage Stores, and in the mid-'90s took it public, collecting $184 million from stock offerings. Stage filed for bankruptcy in 2000. • 1992: Bain bought American Pad & Paper, investing $5 million, and collected $107 million from dividends. The business filed for bankruptcy in 2000. • 1993: Bain invested $25 million when buying GS Industries, and received $58 million from dividends. GS filed for bankruptcy in 2001. • 1994: Bain put $27 million down to buy medical equipment maker Dade Behring. Dade borrowed $230 million to buy some of its shares. Dade went bankrupt in 2002. • 1997: Bain invested $41 million when buying Details, and collected at least $70 million from stock offerings. The company filed for bankruptcy in 2003.

President Obama is afraid to criticize Romney's Bain Capital days because Republicans will accuse him of being against capitalism. Well, so what. Today's capitalism is not your Grandfather's capitalism. If a law were passed making it illegal to raid a company's pension fund and make a large payout to investors, would that be against capitalism? Capitalism is malleable. It only exists within a legal framework. Some of it should be outlawed like the part that let Romney buy companies with borrowed money and then take a tax writeoff because the money was borrowed. Wall street lobbyists have changed the laws regarding capitalism to their own advantage. The Commodities Futures Modernization Act of 2000 deregulated derivatives and helped to cause the financial meltdown of 2008. Advocating reregulating derivatives is not anti-capitalistic. So if Obama were to go after Romney's record as a vulture capitalist, it does not mean he is against capitalism, only capitalism as it has been "modernized" and deregulated.

Obama should double down on what Romney and  Bain Capital really did which was to load companies up with debt, take the borrowed money for their own personal benefit, raid pension funds, fire unionized workers and hire nonunionized ones at much reduced pay, sell off profitable parts of companies and then force them into bankruptcy. This is exactly what a vulture does: picks apart a carcass for its own profit. He should not give Romney one iota of credit for making money for himself and his investors. After all Romney will never be caught dead giving Obama one iota of credit for anything.

Why Obama Should Be Attacking Casino Capitalism — Both Romney’s Bain and JPMorgan

by Robert Reich

Tuesday, May 22, 2012

I wish President Obama would draw the obvious connection between Bain Capital and JPMorgan Chase.

That way his so-called “attack” on private equity is neither a personal attack on Mitt Romney nor a generalized attack on American business.

It’s an attack on a particular kind of capitalism that Romney and JPMorgan both practice: Using other peoples’ money to make big bets which, if they go wrong, can wreak havoc on the economy.

It’s the substitution of casino capitalism for real capitalism, the dominance of the betting parlor over the real business of America, financial innovation rather than product innovation.

It’s been terrible for the American economy and for our democracy.

It’s also why Obama has to come out swinging about JPMorgan. The JPMorgan Chase debacle would have been prevented if the Volcker Rule were sufficiently strict, prohibiting banks from using commercial deposits to make bets except very specific offsetting bets (hedges) on narrow classes of trades.

But Jamie Dimon and JPMorgan have been lobbying like mad to loosen the Volcker Rule and widen that exception to include the very kind of reckless bets JPMorgan made. And they’re still at it, as evidenced by Dimon’s current claim that the rule that eventually emerges would allow those bets.

As a practical matter, the Volcker Rule is hopeless. It was intended to be Glass-Steagall lite — a more nuanced version of the original Depression-era law that separated commercial from investment banking. But JPMorgan has proven that any nuance — any exception — will be stretched beyond recognition by the big banks.

So much money can be made when these bets turn out well that the big banks will stop at nothing to keep the spigot open.

There’s no alternative but to resurrect Glass-Steagall as a whole. Even then, the biggest banks are still too big to fail or to regulate. We also need to heed the recent advice of the Dallas branch of the Federal Reserve, and break them up.

At the same time, there’s no point to the “carried interest” loophole that allows private-equity managers like Mitt Romney to treat their incomes as capital gains, taxed at only 15 percent, when they’ve risked no money of their own.

If private equity were good for America it wouldn’t need this or the other tax preference it depends on, elevating debt over equity. But the private equity industry has huge political clout, which is why these tax preferences remain.

Get it? Bain Capital and JPMorgan are parts of the same problem. The President should be leading the charge against both.

Obama has to Explain Why Fairness is Essential to Growth (and Why Some Democrats Have to Stop Believing Otherwise)

by Robert Reich

Wednesday, May 23, 2012

The Cory Booker imbroglio has ignited a silly but potentially pernicious debate in the Democratic Party between so-called “pro-growth centrists” who want the President to focus on how well he’s done getting the economy back on its feet after the Bush administration almost knocked it out, and “pro-fairness populists” who want him to focus on the nation’s widening inequality and Wall Street’s (and Romney’s) continuing role in generating profits for a few at the expense of almost everyone else.

According to the National Journal’s Josh Kraushaar, for example:

Conversations with liberal activists and labor officials reveal an unmistakable hostility toward the pro-business, free-trade, free-market philosophy that was in vogue during the second half of the Clinton administration….. Moderate Democratic groups and officials, meanwhile, privately fret about the party’s leftward drift and the Obama campaign’s embrace of an aggressively populist message… [T]hey wish the administration’s focus was on growth over fairness.

This is pure bunk – or should be.

Fairness isn’t inconsistent with growth; it’s essential to it. The only way the economy can grow and create more jobs is if prosperity is more widely shared.

The key reason why the recovery is so anemic is so much income and wealth are now concentrated at the top is America’s the vast middle class no longer has the purchasing power necessary to boost the economy.

The richest 1 percent of Americans save about half their incomes, while most of the rest of us save between 6 and 10 percent. That shouldn’t be surprising. Being rich means you already have most of what you want and need. That second yacht isn’t nearly as exciting as was the first.

It follows that when, as now, the top 1 percent rakes in more than 20 percent of total income — at least twice the share it had 30 years ago — there’s insufficient demand for all the goods and services the economy is capable of producing at or near full employment. And without demand, the economy doesn’t grow or generate nearly enough jobs.

Wall Street is part of the problem because it’s responsible for so much of the concentration of income and wealth at the very top – and for much of the distress still felt in the rest of the economy after the Street nearly melted down in 2008.

The Street has turned a significant part of the economy into a giant casino involving mammoth bets with other peoples’ money. When the bets go well, the rich owners of the casino (Wall Street executives, traders, hedge-fund managers, private-equity managers) become even richer. When the bets go sour, the rest of us bear the costs.

The casino also requires continuous transfers of wealth from ordinary taxpayers. Some are built into the tax code. One is the preference of debt over equity (interest on debt is tax deductible), which awards Wall Street banks like JPMorgan for risky lending and awards private-equity firms like Bain Capital for piling debt on the firms it buys.

Another is the “carried interest” rule that, absurdly, allows private-equity managers (like Mitt Romney) to treat their income as capital gains even when they haven’t risked any of their money.

The biggest of all is the invisible guarantee that if the biggest banks get into trouble, taxpayers will bail them out. This subsidy reduces the big banks’ cost of capital relative to other banks and fuels even more risky lending.

None of this is fair. It’s also bad for economic growth and jobs – as we’ve so painfully witnessed.

Translated into presidential politics, all this means the President should be talking about fairness and growth and jobs, and explaining why we can’t have the latter without the former.

It also means he should be attacking Mitt Romney because Romney is part of the system of casino capitalism that has harmed America and held back growth — and Romney wants even less regulation of Wall Street (he’s vowed to repeal Dodd-Frank).

And because the budget Romney has put forth would gut public services vital to the middle class and poor, while cutting taxes on the rich and on corporations even more than they’ve already been cut.

In other words, Romney epitomizes the unfairness of the American economy in this new Gilded Age. For that same reason, Romney is the quintessence of an economic approach shown to be anti-growth and anti-jobs.

How J.P. Morgan Chase Has Made the Case for Breaking Up The Big Banks and Resurrecting Glass-Steagall

by Robert Reich

Thursday, May 10, 2012

 

J.P. Morgan Chase & Co., the nation’s largest bank, whose chief executive, Jamie Dimon, has led Wall Street’s war against regulation, announced Thursday it had lost $2 billion in trades over the past six weeks and could face an additional $1 billion of losses, due to excessively risky bets.

The bets were “poorly executed” and “poorly monitored,” said Dimon, a result of “many errors, “sloppiness,” and “bad judgment.” But not to worry. “We will admit it, we will fix it and move on.”

Move on? Word on the Street is that J.P. Morgan’s exposure is so large that it can’t dump these bad bets without affecting the market and losing even more money. And given its mammoth size and interlinked connections with every other financial institution, anything that shakes J.P. Morgan is likely to rock the rest of the Street.

Ever since the start of the banking crisis in 2008, Dimon has been arguing that more government regulation of Wall Street is unnecessary. Last year he vehemently and loudly opposed the so-called Volcker rule, itself a watered-down version of the old Glass-Steagall Act that used to separate commercial from investment banking before it was repealed in 1999, saying it would unnecessarily impinge on derivative trading (the lucrative practice of making bets on bets) and hedging (using some bets to offset the risks of other bets).

Dimon argued that the financial system could be trusted; that the near-meltdown of 2008 was a perfect storm that would never happen again.

Since then, J.P. Morgan’s lobbyists and lawyers have done everything in their power to eviscerate the Volcker rule — creating exceptions, exemptions, and loopholes that effectively allow any big bank to go on doing most of the derivative trading it was doing before the near-meltdown.

And now — only a few years after the banking crisis that forced American taxpayers to bail out the Street, caused home values to plunge by more than 30 percent, pushed millions of homeowners underwater, threatened or diminished the savings of millions more, and sent the entire American economy hurtling into the worst downturn since the Great Depression — J.P. Morgan Chase recapitulates the whole debacle with the same kind of errors, sloppiness, bad judgment, and poorly-executed and excessively risky trades that caused the crisis in the first place.

In light of all this, Jamie Dimon’s promise that J.P. Morgan will “fix it and move on” is not reassuring.

The losses here had been mounting for at least six weeks, according to Morgan. Where was the new transparency that’s supposed to allow regulators to catch these things before they get out of hand?

Several weeks ago there were rumors about a London-based Morgan trader making huge high-stakes bets, causing excessive volatility in derivatives markets. When asked about it then, Dimon called it “a complete tempest in a teapot.” Using the same argument he has used to fend off regulation of derivatives, he told investors that “every bank has a major portfolio” and “in those portfolios you make investments that you think are wise to offset your exposures.”

Let’s hope Morgan’s losses don’t turn into another crisis of confidence and they don’t spread to the rest of the financial sector.

But let’s also stop hoping Wall Street will mend itself. What just happened at J.P. Morgan – along with its leader’s cavalier dismissal followed by lame reassurance – reveals how fragile and opaque the banking system continues to be, why Glass-Steagall must be resurrected, and why the Dallas Fed’s recent recommendation that Wall Street’s giant banks be broken up should be heeded.

 

What Determines the Price of Gas?

by John Lawrence

Frank Thomas has written an excellent article on the transition from fossil fuels as a source of energy to renewable resources such as wind, solar and biomass that is going on in Denmark and Germany. In this article we explore how the price of gas at the pump is determined. This is an opaque subject which has been heaped in layers of obfuscation because the oil companies don't want you to know what a huge scam they are perpetrating on the American public systematically ripping them off at the gas tank. They want you to think that gas prices are set by immutable, impersonal factors like the "world oil market" over which we have no control nor ever could we. When the oil company executives went before a Congressional hearing in May 2011 as gas prices hit $4.00 a gallon, Rex Tillerson, CEO of Exxon Mobil, was asked "how are oil prices set?" He responded that they were based on the marginal cost of producing the next barrel of oil. Nothing could be further from the reality of the situation although it would be a worthy aspirational ideal, something to shoot for in a more perfect world. The Big 5 oil companies - Exxon Mobil, Shell, ConocoPhillips, BP America and Chevron - defended their huge tax breaks and subsidies despite record and eye popping profits as necessary to incentivize them to drill for more oil implying that more domestically produced oil would lessen dependency on imported foreign oil and keep the price down. This is also a total crock. Prices are set on the "world oil market" and have nothing to do with whether or not the oil is produced domestically or abroad.

According to Public Citizen:

Big Oil CEOs testify Thursday before the Senate Committee on Finance to defend the trillion dollars in profits they have made in the past decade thanks to you, the American consumer. Some in Congress will defend the billions of dollars in tax breaks and royalty relief taxpayers give to these same companies each year. Public Citizen recently crunched the numbers and found that Big Oil’s profits aren’t the only eye-popping statistic – what the industry is spending its money on is equally astonishing.  Big Oil lavishes more on stock buybacks, dividend payments, lobbying and marketing than on U.S. oil investments. Our research shows that since 2005, the largest five oil companies operating in the U.S. spent nearly half a trillion dollars buying back their own stock and paying dividends to shareholders. That’s more money than they spent investing in their U.S. infrastructure. This contradicts the industry’s insistence that its billions of dollars a year in tax breaks are needed to create jobs and keep gas prices affordable. In fact, Big Oil’s investment decisions are driven by market prices of crude oil, not U.S. tax policy.  It’s time our leaders stop bowing to corporate interests and put an end to the “take the money and run” tactics of Big Oil that are nothing short of highway robbery. While the speculation-fueled price of oil per barrel has continued to escalate, the underlying costs to produce oil haven’t. Consider this: On average, it costs $20 to produce a barrel of oil. Big Oil sells it to us for more than $100. This generates the massive cash flow that fuels oil companies’ profits and spending.

Ever wonder who pays for those ubiquitous "touchy-feely" TV ads by ExxonMobil, Chevron and the Oil and Gas Industry that you see day in and day out? You do. Without them the price of gas at the pump could be lower.

But despite the oil company executives' dissimulation, deception and mendacity, there are several factors that go into the witch's brew of oil and gas prices: namely, royalties paid to the owner of the oil before its extracted, the law of supply and demand and speculation. First, the oil as it sits in the ground, unbeknownst to most American citizens does not belong to the oil companies. It belongs to them! It is a public resource no matter how much the executives would try to persuade you that it is private property. Oil corporations pay the Federal government (meaning you the taxpayer) royalties in return for the right to drill on goverment (citizen) owned property. During most of the twentieth century, oil and gas companies generally paid between 12.5 and 16.7 percent in royalties for a lease to drill on public land or water. This is one of the lowest rates paid to a government anywhere in the world! In comparison Norway's citizen/taxpayers get a 50% return on their oil assets.

According to the US Goverment Accountability Office:

Based on results of a number of studies, the U.S. federal government receives one of the lowest government takes in the world. Collectively, the results of five studies presented in 2006 by various private sector entities show that the United States receives a lower government take from the production of oil in the Gulf of Mexico than do states - such as Colorado, Wyoming, Texas, Oklahoma, California, and Louisiana - and many foreign governments. Other government-take studies issued in 2006 and prior years similarly show that the United States has consistently ranked low in government take compared to other governments.

So American taxpayers/consumers are being ripped off by oil companies before the oil even gets out of the ground! If higher royalties were paid, this would offset the price of gas at the pump and/or reduce taxes. In any event this would benefit the American consumer/taxpayer. Moreover, royalties have been fraudulently underpaid or exempted from for years. In 1995, both houses of Congress passed and President Bill Clinton signed the Deep Water Royalty Relief Act (S.395), which granted a royalty "holiday" to oil and gas companies drilling in government-owned deep waters in the Gulf of Mexico for leases sold between 1996 and 2000. In 2005, Congress passed and President Bush signed the Energy Policy Act of 2005 (H.R. 6). which included a variety of provisions to provide royalty relief to oil and gas companies.

But wait there's more:

During the mid-nineties, whistleblowers and the Project on Government Oversight (POGO), a government watchdog group, filed suit against sixteen oil companies for failing to pay their required royalties. POGO’s suit was filed under the False Claims Act (FCA), which provides citizens the power to sue on behalf of the federal government for fraud. In these cases, the Justice Department has the right to join the case. This ultimately happened in the POGO case. From 1998 to 2001, a dozen major companies, while acknowledging no wrongdoing, paid $438 million to settle charges that they had intentionally misreported their sale prices for oil (in order to pay lower royalties).

So while the big oil companies were recording record profits, paying little if any taxes to the Federal government (causing you to pay more) and receiving subsidies, they were also committing fraud by underpaying royalties which were minimal in the first place.

Now that we've got the oil out of the ground, what is the next step? Why placing it on the world oil market which means that US oil companies will sell it anywhere in the world to the highest bidder. You might think that they would sell oil extracted in the US to US consumers first and then this would be supplemented by oil bought from abroad - the so-called foreign oil - to make up the shortfall in which case oil would be subject to the law of supply and demand within the US but such is not the case. American consumers are expected to buy gas that is subjected to the law of supply and demand among world consumers which means that as demand goes up in China and India, for example, American gas prices will rise even as demand within the US is falling. Dependency on foreign oil is a misnomer and a bugaboo. Our supposed dependence on foreign oil has nothing to do with the price of oil. What we're really dependent on is that "our" oil companies sell us "our" oil based on world oil market prices which means that they extract from us much higher prices than if they sold us "our" oil based on the domestic oil market. In other words oil produced on US real estate and sold to US consumers would end up being cheaper than oil placed on the world oil market and priced accordingly. So drilling for more oil on American soil has nothing to do with lessening our dependence on foreign oil because the pricing of oil we consume has nothing to do with how much oil is extracted from American soil.

To the extent that the law of supply and demand comes into effect which, as we shall see, is minimal, it is easily seen that this factor gives the lie to Tillerson's claim that the price of oil is based on the "marginal cost of the next barrel of oil that is produced." The law of supply and demand states that the seller will sell his product for the highest price he can get irregardless of cost. The selling price has nothing whatsoever to do with cost. It only has to do with demand. Edvard Munch probably produced "The Scream" for less than $10. Yet it sold recently at auction for $119 million. A Liz Claiborne sweater for which the worker in Thailand is paid 3 cents to make sells for $170. The law of supply and demand insures that cost has nothing to do with selling price. Insofar as the price of oil is affected by supply and demand, the same thing holds true.

The next factor to be considered is speculation. Oil being a commodity is traded on the commodities exchange. Futures contracts are bought and sold. What this means is that gas prices aren't simply set by the law of supply and demand but that speculators who are only in it purely for profit can drive up the price of oil. These are people who have no interest in ever taking delivery of the oil. They will buy a futures oil contract only to sell it (hopefully at a profit) before the oil has to be delivered. It has been estimated that 80% of the oil market is under the control of speculators. None other than Rex Tillerson, CEO of ExxonMobil, has testified that this has caused a 40% spike in gas prices. So "market forces," namely the selling of oil on the world market instead of just the domestic market and speculators have control of and can manipulate the price of gas at the pump in order to gouge the American public and increase their profits. Although the Commodities Futures Trading Commission was ordered to put position limits on speculators under the Wall Street reform act passed by Congress in 2010, they have failed to do so. This has allowed the continuation of unbridled speculation which translates into an additional $750. a year going directly from your pocket into those of the Wall Street speculators every time you fill up your vehicle!

Some believe that speculators control the market completely and supply and demand has nothing to do with it. In a blog titled "Futures Prices Determine Physical Oil Prices," JD contends that spot oil prices adjust to futures prices and not the other way around as is commonly thought. The spot oil price is simply the price of physical oil if you went out and bought some today. It is not too hard to see why the futures oil price would control the market if most of the oil market was tied up in futures contracts. If that were the case, there would simply not be enough oil on the spot market for current users, and oil consumers would be forced to buy from those who held the futures contracts in which case they would have to pay the futures contract price not the spot oil price. Supply and demand would have little to do with it since there would be relatively little supply on the current physical oil market.

All of this begs the question of why does oil and gas have to be subject to market forces and speculation at all? The answer to that question is that this maximizes profits for the oil companies and Wall Street while providing a disservice to American citizens/taxpayers. If the price of oil was not set by "the market", if control of natural resources was in the hands of or controlled by the citizens/taxpayers, we wouldn't have the ridiculous situation that supply of oil is as great as it's ever been while demand is exceedingly low, yet the price of gas at the pump has doubled compared to what it was when supply was lower and demand was greater.

In the documentary "GasHole" the nefarious activities of the oil companies are pointed out including the elimination of any technology such as the water injected carbuerator which results in a car getting 100 mpg and the electric car that was killed by the oil companies in the 1990s as recorded in the documentary "Who Killed the Electric Car?". Before the turn of the 20^th century, in 1893, Rudolf Diesel developed a fuel source based on peanut energy.  He said, “The use of vegetable oil for engine fuels may seem insignificant today.  But such oils may become, in the course of time, as important as petroleum.”  His demise is also shrouded in mystery, and his engine invention moved forward — using oil, another example of how the oil corporations bought out or forced out every alternative to the use of oil to propel vehicles. In 1904 progressive muckraker Ida Tarbell wrote "The History of Standard Oil" in which she pointed out how John D Rockefeller had used unethical business practices to force out smaller oil producers. As a result the Standard Oil monopoly was broken up into smaller companies based on states. In New Jersey it became Standard Oil of New Jersey which later became Exxon. In New York it became Mobil etc. Under the Clinton administration these two corporations were allowed to merge again into ExxonMobil.

The biggest crock is that the way to lower gas prices is to produce more domestic oil - drill, baby, drill. This is because oil prices are set on the world oil market not on any kind of domestic oil market. The way to lower gas prices is for the American people to take control of the resources they purportedly own. We can hire the oil companies to do the work for us of getting the oil out of the ground and refining it, but we should control gas prices, not the oil corporations or the "markets" namely Wall Street speculators. If We the People controlled the price of gas, it could be more rationally based on, as Rex Tillerson said, "the marginal cost of producing the next barrel of oil," instead of oil prices set by the "world oil market" and speculators.

 

The Tinder-Box Society

by Robert Reich

Tuesday, May 1, 2012

The Dow Jones Industrial Average hit 13,338 Tuesday, its highest since December, 2007. The S&P 500 added 16 points. Wall Street will remember May 1 as a great day.

But most of these gains are going to the richest 10 percent of Americans who own 90 percent of the shares traded on Wall Street. And the lion’s share of the gains are going to the wealthiest 1 percent.

Shares are up because corporate profits are up, and profits are up largely because companies have figured out how to do more with less.

Payrolls used to account for almost 70 percent of the typical company’s costs. But one of the most striking legacies of the Great Recession has been the decline of full-time employment – as companies have substituted software or outsourced jobs abroad (courtesy of the Internet, making outsourcing more efficient than ever), or shifted them to contract workers also linked via Internet and software.

That’s why most of the gains from the productivity revolution are going to the owners of capital, while typical workers are either unemployed or underemployed, or else getting wages and benefits whose real value continues to drop. The portion of total income going to capital rather than labor is the highest since the 1920s.

Increasingly, the world belongs to those collecting capital gains.

They’re the ones who demanded and got massive tax cuts in 2001 and 2003, on the false promise that the gains would “trickle down” to everyone else in the form of more jobs and better wages.

They’re now advocating austerity economics, on the false basis that cuts in public spending – including education, infrastructure, and safety nets – will generate more “confidence” and “certainty” among lenders and investors, and also lead to more jobs and better wages.

None of this is sustainable, economically or socially.

It’s not sustainable economically because it has resulted in chronically inadequate demand for goods and services. That’s meant anemic growth punctuated by recessions. Without a larger share of the economic gains, the vast middle class doesn’t have the purchasing power to buy the goods and services an ever-more productive economy can generate.

It’s not sustainable socially because it has resulted in rising frustration over the inability of most people to get ahead.

Austerity economics in Europe is fanning the flames, as public budgets are slashed on the false crucible of fiscal responsibility. In the United States, an anemic recovery and plunging home prices are taking a toll: a large portion of the public believes the game is rigged, and no longer trusts that the major institutions of society – big business, Wall Street, or government – are on their side. In Europe and America, 30 to 50 percent of recent college graduates are unemployed or underemployed.

Inequality is also widening in China, where the scandal surrounding Bo Xilai and his family is serving as a public morality tale about great wealth and official corruption. Students in Chile are in revolt over soaring tuition and other perceived social injustices.

It’s a combustible concoction wherever it occurs: Increasing productivity, widening inequality, and rising unemployment create tinder-box societies.

Public anger and frustration can ignite in two very different ways. One is toward reforms that more broadly share the productivity gains.

The other is toward demagogues that turn people against one another.

Demagogues use fear and frustration to advance themselves and their own narrow political agendas – scapegoating immigrants, foreigners, ethnic minorities, labor unions, government workers, the poor, the rich, and “enemies within” such as communists, terrorists, or other conspirators.

Be warned. The demagogues already are on the loose. In Europe, fringe parties on the right and left are gaining ground. In America, politics has turned especially caustic and polarized. (The right is even accusing people it doesn’t like of being communists.) No one knows where China is heading, but reformers and ideologues are battling some of it out in public.

May 1 may be a good day for the Dow Jones Industrial Average, but the future depends on the job prospects and wages of the average worker.

The Significance of Citigroup’s Shareholder Revolt

by Robert Reich

Wednesday, April 18, 2012

The shareholders of Wall Street giant Citigroup are out to prove that corporate democracy isn’t an oxymoron. They’ve said no to the exorbitant $15 million pay package of Citi’s CEO Vikram Pandit, as well as to the giant pay packages of Citi’s four other top executives.

The vote, at Citigroup’s annual meeting in Dallas Tuesday, isn’t binding on Citigroup. But it’s a warning shot across the bow of every corporate boardroom in America.

Shareholders aren’t happy about executive pay.

And why should they be? CEO pay at large publicly-held corporations is now typically 300 times the pay of the average American worker. It was 40 times average worker pay in the 1960s and has steadily crept upward since then as corporations have morphed into “winner-take-all” contraptions that reward their top executives with boundless beneficence and perks while slicing the jobs, wages, and benefits of almost everyone else.

Meanwhile, too many of these same corporations have failed to deliver for their shareholders. Citigroup, for example, has had the worst stock performance among all large banks for the last decade but ranked among the highest in executive pay. 

The real news here is new-found activism among institutional investors – especially the managers of pension funds and mutual funds. They’re the ones who fired the warning shot Tuesday.

Institutional investors are catching on to a truth they should have understood years ago: When executive pay goes through the roof, there’s less money left for everyone else who owns shares of the company.

For too long, most fund managers played the game passively and obediently. Some have been too cozy with top corporate management, forgetting their fiduciary duty to their own investors. How else do you explain the abject failure of fund managers to police Wall Street as it careened toward the abyss in 2008? Or to adequately oversee executives, such as the Enron criminals, who were looting their companies in the years before 2002?

The new Dodd-Frank law, much of which is being eviscerated by Wall Street’s lawyers and lobbyists, at least requires that public companies give shareholders a say on pay. As a practical matter, this gives institutional investors the chance to speak clearly and openly about the scandal of unbridled executive compensation. 

Two key questions for the future: Will institutional investors keep the pressure on? And will CEOs and boards of directors get the message?

 

Flooding the World with Government Issued Fiat Money - Implications for the Dollar as the World's Reserve Currency

by John Lawrence

The American solution to the 2008 financial crisis was flooding the economy with money. There was the TARP, the Troubled Asset Relief Program, a $700 billion bailout of the US' largest banks. But that was only the beginning. Dr. Ben Bernanke at the Federal Reserve bank added another $9 trillion to the money supply with his policy of "quantitative  easing" which is just a euphemism for "printing money." The Fed has printed money again and again. There was a follow-up policy, QE2, because the Fed figured it hadn't printed enough money with QE1. In addition to the US Fed, the European Central Bank (ECB) has been printing money to bail out Greece and other vulnerable European economies. The Central Bank of Japan has also been printing money fast and furiously. Both the US Fed and the ECB are legally prohibited from buying up their country's debts directly, but they can loan money to their big banks and these banks can in turn loan money to the respective countries in an indirect "wink-wink" transaction thus getting around the inconvenient limitations imposed by law. As a consequence another layer of interest accrues to the big banks increasing their power and dominance over the world economy to the point that supposedly sovereign countries have become mere dependencies on them.

What does all this money creation do? First, it supposedly offers a stimulus to economies that are verging on recession. But that is not really happening due to the fact that most of this money is simply being siphoned off by the world's big banks, and, instead of stimulating the economy, is simply going into the financial sector fueling even more speculation and contributing to a possible further meltdown and bailout down the road. In Europe the money is simply going to pay down debts incurred by the various countries. Nothing is being done to spur Greece's economy, for example. Instead the Greeks are being subjected to a regime of austerity - firing workers, reducing pensions and generally creating economic malaise for the average Greek citizen. This will force the Greek economy into a deeper recession with the result that Greek indebtedness will only increase requiring another round of bailouts by the ECB.

Another effect of printing money, sometimes called government "fiat money", since it's not backed by gold or anything else, is the debasement of the currency and inflation. In general the larger the money supply, the more inflation there is. This is not a big concern when an economy is in recession, but becomes a greater concern when the economy starts to "heat up." As far as the debasement of the currency is concerned, the dollar is starting to lose value with respect to other currencies. The more fiat money the government creates, the less the dollar will be worth and this has implications for the dollar as the world's "reserve currency."

Ellen Brown has written extensively about the good aspects of fiat money, namely, Abraham Lincoln's use of it to win the Civil War and build the transcontinental railroad. But all fiat money is not created equal. In Lincoln's day his fiat money went directly into the "real" economy. That is it went to average working people to fight a war and create infrastructure. It avoided having to borrow the money and saved the US government $4 billion in interest. There is a difference in the fiat money that the Fed and the ECB are creating today. Their fiat money is going directly into the financial sector instead of into projects that distribute the money to average citizens and workers. In other words in a perverted downward spiral, today's fiat money is going to pay off the world's big banks like JC Morgan Chase and Goldman Sachs and to pay interest on huge debts owed to private bankers. The Lloyd Blankfeins and the Jamie Diamonds of the world are profiting while the average working person and citizen is only going deeper into debt. The money is not "trickling down", making Republican assertions that all we need to do to get the economy booming again is to give more money to the rich, a ridiculous assertion. The only way to get the economy working again is to give the money directly to the average working person, but this possibility is not even on the radar of the world's western economies like it was during the Great Depression. That is, instead of inserting fiat money into the financial sector resulting in huge profits for bankers and miniscule results for the middle class, the money needs to be inserted into the economy directly at the middle class level which is to say in the form of infrastructure development and support programs like food stamps and tax breaks for the middle class.

The dollar is the world's reserve currency only because the US cut a deal with the middle east oil sheiks that oil on the world market would only be traded in dollars. But here too the dollar is being undercut since some countries, notably China, are cutting direct country to country deals which bypass the world oil market and bypass having to purchase oil in dollars. There are also moves afoot to replace the dollar by a basket of other currencies which would compete with the dollar. All of this is not promising for the continuance of the predominace of the dollar. Increasingly, US Treasuries are becoming less desirable as investment vehicles which means that the money printed by the Federal Reserve is increasingly being used just to buy up the US deficit which is the shortfall between Federal government expenditures and Federal tax revenues. So money is being printed just to bridge the gap. Obviously, this can only be a short term solution to US deficit and fiscal problems. For the long term the US economy itself has to produce tax revenues sufficient to balance government expenditures or, more likely, to pay increasingly higher interest rates to attract private investors just as Greece and Spain are having to do.

So as the US money supply is further diluted by quantitative easing, the value of US money is diminishing, dollar-denominated debt is less desirable as an investment and the role of the US dollar as the world's reserve currency is being eroded. European countries are in a similar predicament having become essentially subsidiaries of US and European banks. One of the statistics that substantiates these assertions is that 93% of the income gains since the Great Recession have gone to the upper 1%. In other words most of the money created has gone to the hedge funds, large banks and other elements of the financial sector. This money has not "trickled down" to the real economy. This is the ultimate denouement of the fact that the western world has relied too much on debt basing their economies. Rather than spending from strength which is spending from savings and accumulated wealth which countries with sovereign wealth funds are able to do, western countries and individuals have overspent by going into debt and the accrued interest is only driving them further into debt. The result is that huge amounts of interest are owed to the big banks, and this amount of money is swamping western economies and debasing the values of the dollar, euro and yen.

In a Trillion Euros Didn't Buy Much Time, Rick Ackerman discusses the fact that the US and Europe have both been reduced to the same level. Their central banks are being forced into the position of bailing out the US and the European countries by buying up their debt since private investors are becoming more and more reluctant to buy it. The US Fed is printing money to make up the difference between US government expenditures and what US taxes and private investors are willing to fund and in the European case, the ECB is buying up Greek and Spanish debt that private investors are turning up their noses at. This buying of debt means that central banks are effectively printing money to pay off the big banks which are owed money that US and European citizens as taxpayers don't have the money to pay and which increasingly cannot be borrowed from private investors.

All this supports my contention that the real action in the world economy these days is not with the average worker/consumer. The average person is becoming increasingly irrelevant. Instead the big banks, hedge funds and central banks are where the action is. In the US the big banks were bailed out while practically nothing was done to bail out the average person. Just think of the foreclosure crisis where HAMP, the Home Affordable Mortgage Program, turned out to be a worthless, toothless approach which did more damage to the average home owner by raising hopes which were later dashed than if it had never been enacted. It did almost nothing to protect home owners from being foreclosed on even though most of the foreclosures were fraudulent. In some cases home owners were led on being promised modified mortgages if they would only keep up current payments only to be foreclosed on at a later date instead of being given the revised mortgages they had been promised. The government's attitude was "we have to let the banks do anything they want, even engage in fraudulent activities, because to do otherwise would risk collapse of the entire system." Ellen Brown's plea for the elimination of the debt based, interest oriented economy in favor of public banking favoring fiat money injected into the real economy instead of into the financialized economy seems further and further from any possibility of being realized.

 

Matt Taibbi: Bank of America is a “Raging Hurricane of Theft and Fraud”

Matt Taibbi speaking at an Occupy Wall Street day of action, February 29th, 2012. He wrote this article for OWS, and passed it out to the crowd.  It’s an informative and urgent call to action for Americans from all walks of life.  

from fthebanks.com, February 29, 2012

There are two things every American needs to know about Bank of America.

The first is that it’s corrupt. This bank has systematically defrauded almost everyone with whom it has a significant business relationship, cheating investors, insurers, homeowners, shareholders, depositors, and the state. It is a giant, raging hurricane of theft and fraud, spinning its way through America and leaving a massive trail of wiped-out retirees and foreclosed-upon families in its wake.

The second is that all of us, as taxpayers, are keeping that hurricane raging. Bank of America is not just a private company that systematically steals from American citizens: it’s a de facto ward of the state that depends heavily upon public support to stay in business. In fact, without the continued generosity of us taxpayers, and the extraordinary indulgence of our regulators and elected officials, this company long ago would have been swallowed up by scandal, mismanagement, prosecution and litigation, and gone out of business. It would have been liquidated and its component parts sold off, perhaps into a series of smaller regional businesses that would have more respect for the law, and be more responsive to their customers.

But Bank of America hasn’t gone out of business, for the simple reason that our government has decided to make it the poster child for the “Too Big To Fail” concept. Because it is considered a “systemically important institution” whose collapse would have a major, Lehman-Brothers-style impact on the economy, two consecutive presidential administrations have taken extraordinary measures to keep Bank of America in business, despite a staggering recent legacy of corruption schemes, many of which were simply overlooked by regulators.

This is why the question of whether or not Bank of America should remain on public life support is so critical to all Americans, and not just those millions who have the misfortune to be customers of the bank, or own shares in the firm, or hold mortgages serviced by the company. This gigantic financial institution is the ultimate symbol of a new kind of corruption at the highest levels of American society: a tendency to marry the near-limitless power of the federal government with increasingly concentrated, increasingly unaccountable private financial interests.

The inevitable result of that new form of corruption is this bank, whose continued, state-supported existence should naturally outrage all Americans, be they conservative or progressive.

Conservatives should be outraged by Bank of America because it is perhaps the biggest welfare dependent in American history, with the $45 billion in bailout money and the $118 billion in state guarantees it’s received since 2008 representing just the crest of a veritable mountain of federal bailout support, most of it doled out by the Obama administration.

For instance, with its own credit rating hovering just above junk status, Bank of America has been allowed to borrow tens of billions of dollars against the government’s credit rating using little-known bailout programs with names like the Temporary Liquidity Guarantee Program. Since the crash of 2008, it’s also borrowed billions if not trillions in emergency, near-zero interest rate loans from the Federal Reserve – it took out $91 million in rolling low-interest financing from the Fed on just one day in January, 2009.

Conservatives believe that a commitment to free market principles and limited government will lead us out of our economic troubles, but Bank of America represents the opposite dynamic: a company that is kept protected from the judgments of the free market, and forces the state to expand to take on its debts.

Last summer, for instance, the Bank – in order to satisfy creditors who were nervous about the enormous quantity of risky assets on its balance sheet – decided to move some $73 trillion (that’s trillion, with a T) in exotic derivative bets from one end of the company into the federally-insured, depository side of the bank.

This move, encouraged by the Obama administration, put the American taxpayer on the hook for an entire generation of irresponsible gambles made by another failed investment firm that should have gone out of business, but was instead acquired by Bank of America with $25 billion in taxpayer help – Merrill Lynch.

When did we make it the job of the taxpayer to buy failed companies, and rescue companies from their own bad decisions? How is that conservative?

Meanwhile, if you’re a progressive, Bank of America is the ultimate symbol of modern predatory capitalism. This company has knowingly sold hundreds of billions of worthless securities to unions and pension funds (New York state filed two different lawsuits against Bank of America and its subsidiaries on behalf of its pension fund, one of which was settled for $624 million) brazenly overcharged its depositors (it was forced to pay customers $410 million in restitution for bogus overdraft charges), and repeatedly lied to its shareholders (most notoriously, it lied about billions in losses on Merrill Lynch’s books before asking shareholders to approve its merger with the firm).

Moreover, Bank of America has ruthlessly preyed upon millions of homeowners, throwing them out on the street on the strength of doctored, “robosigned” paperwork created through brazenly illegal practices they helped pioneer — the firm sped struggling families to foreclosure court using perjured affidavits produced in factory-like fashion by the hundreds or thousands every day, with full knowledge of management.  Through the firm’s improper use of an unaccountable private electronic mortgage registry system called MERS, it also systematically evaded millions of dollars in local fees, forcing some communities to cut services and raise property taxes.

Even when caught and punished for its crimes by the authorities, Bank of America has repeatedly ignored court orders. It was one of five companies identified in two separate investigations earlier this year that were caught continuing the practice of robosigning, even after promising to stop in a legally binding consent decree. Last summer, the state of Nevada sought to terminate a settlement over mortgage abuses it had entered into with Bank of America after it found the company was brazenly violating the agreement, among other things raising payments and interest rates on mortgage customers, despite the fact that the settlement only allowed them to modify loans downward.

Over and over again, we see that leveling fines and punishments at this bank is not enough: it simply ignores them. It is the very definition of an unaccountable corporate villain.

Companies like Bank of America are a direct threat to national security, for many reasons. For one thing, they drive smaller, more honest banks out of business: since the market knows the federal government will never let Bank of America fail, it charges less to lend the bank money. That gives Bank of America, despite its near-junk credit rating, a competitive advantage over a smaller, regional bank that might have a better credit rating, but doesn’t have the implicit support of the federal government.

Worse still, stock market investor dollars that normally would go to more customer-friendly, more creative, and more commercially dependable firms will instead continue to flow to Too-Big-To-Fail behemoths like Bank of America, as buying stock in a company with implicit state support will be considered almost a safe-haven investment, like buying gold or Treasury bills.

This robs more deserving and ingenious entrepreneurs of scarce capital, and also encourages existing companies to pour resources not into better performance and increased productivity, but into lobbying and government influence. The result will be fewer Googles and Apples, more bad banks, and more campaign contributions for politicians.

Moreover, we’ve seen throughout our history that when criminal organizations are not punished, they tend to be encouraged to commit more crimes. Five years from now, our government’s decision to avoid jailing Bank of America executives for their roles in the vast robosigning program may result in a situation where no court document of any kind can be trusted, as companies will realize that it is cheaper and easier to simply invent legal affidavits than to draw them up properly and accurately.

What will your defense be against a future lawsuit for a credit card debt or a foreclosure, when your bank walks into court with a pile of invented documents? Will you wish then that you’d fought harder for Bank of America to be punished now?

And the state’s decision to allow Bank of America to pay a middling, $137 million fine for the rigging of bids for five years of municipal bond issues – a very serious crime that robbed taxpayers of millions in revenue, and incidentally is exactly the sort of thing we used to put mobsters in jail for, when the rigged contracts were for cement instead of bonds – may mean that down the road, all municipal bond issues will be rigged.

In recent years, Too-Big-To-Fail banks like Bank of America and Chase and Wells Fargo have been caught rigging the bids for financial services in dozens of municipalities nationwide. Worse, these same banks have repeatedly been let off the hook by regulators, who rarely seek jail sentences for the offenders, and more often simply apply fractional fines to the companies caught. This behavior, if left unchecked, will ultimately mean that we will all have to pay more for our roads, our traffic lights, our sewers, in fact all public services, as the banker’s secret bonus will soon become an institutionalized part of the invoice. And it’ll be our fault, because we didn’t do anything about it now.

The only way to prevent this kind of slide to total lawlessness is to break this unhealthy relationship between bank and government. It would be a great sign of America’s return to healthier capitalism if we could allow one of the worst of public-private monsters, Bank of America, to sink or swim on its own, in the free market.

We don’t want Bank of America to fail. Our position is, it already is insolvent, and already has failed – and only our tax dollars, and our government’s continued protection, is keeping that failure from becoming more common knowledge. There are many opinions about the nature of modern American capitalism. Some think the system is no longer able to meet the needs of ordinary people and needs to be radically overhauled, while others like it just the way it is.

But one thing that everyone on this spectrum of beliefs can agree upon is that our system doesn’t work when corrupt companies, companies that should fail in the free market, are kept alive by the government. When we allow that, what we get is a system that is neither capitalism nor socialist, but somewhere more miserably in between – a bureaucratic state in which profit is not tied to performance, but political power.

We have to break that cycle, and we can. Even with the enormous levels of state support, Bank of America has been teetering on the edge of collapse for years now. In December of 2011, its share price briefly dipped below $5, a near-fatal event in the firm’s history. The market has reacted violently to bad news about the bank on multiple occasions in the last year – after news of layoffs, after hints that the government might not bail the bank out completely in the event of a collapse, and after significant new lawsuits were filed. Each of these corrections nearly sent the company into a tailspin, but it was always rescued in the end by the widespread belief that Uncle Sam would bail it out in the event of a collapse.

We need to put a dent in that belief. We need to convince politicians and investors alike to allow failure to fail.

– Matt Taibbi, February 29th, 2012, Occupy Wall Street

All Banks Are Not Created Equal

Published on Monday, April 9, 2012 by Common Dreams

How the people can use public banks to supplant Wall Street greed

by Ellen Brown

It is well known that Philadelphia was the birthplace of the U.S. Constitution and American democracy.  Less well known is that it was also the birthplace of public banking in America.  The Philadelphia Quakers originated a banking model involving government-issued money lent to farmers.  The profits returned to the government and the people in a sustainable feedback loop that nourished and supported the local economy. 

Both landmark events will be commemorated in upcoming gatherings in Philadelphia.  On April 7^th, during Occupy Philly’s celebration of its six month anniversary on the mall in front of Independence Hall, the Occupy Philly General Assembly reached consensus in support of the National Gathering Working Group proposal to hold an Occupy National Gathering at the same location from June 30 to July 4, 2012.  The endorsement included a commitment by Occupy Philly to provide the resources necessary to make the first Occupy national gathering in history a resounding success.  The stage was thus set for what could be a revolutionary event located at the historic birthplace of the First American Revolution. 

Resonating with that theme, on April 27^th-28^th the Public Banking in America Conference will be held at the Quaker Friends Center in Philadelphia, hosted by the Public Banking Institute (PBI).  PBI’s vision is to establish a network of public banks across the country to generate affordable credit according to the priorities of real people, not corporate persons or banks.  These priorities include student loans, sustainable agriculture, worker-owned coops, renewable energy, and so on.  The  Bank of North Dakota, currently the only publicly-owned depository bank in the USA, has over two dozen loan programs reflecting the priorities of the people of North Dakota.

Freeing the American people from the economic injustices perpetuated by Wall Street is what Occupy Wall Street is all about.  We have become slaves to the economic power of Wall Street and their political lackeys.  We now pay obscene amounts of interest to private bankers in exchange for the necessities of life.  The American public thought it was chasing the two pillars of the American Dream:  getting an education and buying a house.  Now both of these pillars have been used against us to further the interests of Wall Street.  Student and mortgage debt are used to club us into servitude.    

Samuel Adams said of those whose allegiance was to money:  “If ye love wealth greater than liberty, the tranquility of servitude greater than the animating contest for freedom, go home from us in peace. We seek not your counsel nor your arms. Crouch down and lick the hand that feeds you. May your chains set lightly upon you; and may posterity forget that ye were our countrymen."

After over six months of OWS protests over economic injustice, the Occupy National Gathering and Public Banking in America Conference will look at solutions, inspired by the revolutionary efforts of those who came before us in the birthplace of American freedom, Philadelphia.  

Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest of eleven books, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. She is president of the Public Banking Institute, http://PublicBankingInstitute.org, and has websites at http://WebofDebt.com and http://EllenBrown.com. 

If You Took the Greed Out of Wall Street, All You’d Have Left Is Pavement: Why Greg Smith’s Critique is Way Too Narrow

by Robert Reich

Friday, March 16, 2012

 

Greg Smith, a Goldman Sachs vice president, resigned his post Wednesday with a stinging public rebuke of the firm on the oped page of the New York Times — accusing it of no longer putting its clients before its own pecuniary goals.            

But if Mr. Smith believes his experience at Goldman is something new, he doesn’t know history. In 1928, Goldman Sachs and Company created the Goldman Sachs Trading Corporation, which promptly went on a speculative binge, luring innocent investors along the way. In the Great Crash of 1929, Goldman’s investors lost their shirts but Goldman kept its hefty fees.

If Mr. Smith believes such disregard of investors is unique to Goldman, he doesn’t know the rest of Wall Street. In the late 1920s, National City Bank, which eventually would become Citigroup, repackaged bad Latin American debt as new securities which it then sold to investors no less gullible than Goldman Sachs’s. After the Great Crash of 1929, National City’s top executives helped themselves to the bank’s remaining assets as interest-free loans while their investors and depositors were left with pieces of paper worth a tiny fraction of what they paid for them.

The problem isn’t excessive greed. If you took the greed out of Wall Street all you’d have left is pavement. The problem is endemic abuse of power and trust. When bubbles are forming, all but the most sophisticated investors can be easily duped into thinking they’ll get rich by putting their money into the hands of brand-named investment bankers.

Moreover, finance has become so complex that investors don’t even know when they’re being taken for a ride, and so can’t possibly hold a brand-name bank responsible for their losses – or for gains that are a fraction of what they might otherwise have been.

That’s why we have regulations. After millions of investors lost everything in 1929, the federal government stepped into the breach with the Securities Acts of 1933 and 1934 and the Banking Act of 1933, sponsored by Senator Carter Glass and Congressman Henry Steagall.

But starting in the 1970s and 1980s, Wall Street made sure these and the regulations issued under them were steadily watered down – which contributed to the junk-bond and insider trading scandals of the 1980s, the dot-com scams of the late 1990s and early 2000s, the Wall-Street enablers of Enron and other corporate looters, and the wild excesses that led to the crash of 2008.

Wall Street’s shenanigans have convinced a large portion of America that the economic game is rigged. Yet capitalism depends on trust. Without trust, people avoid even sensible economic risks. And when they think the game is rigged, they’re easy prey for political demagogues with fast tongues and dumb ideas.

The Street has only itself to blame. It should have welcomed new financial regulation as a means of restoring public trust. Instead, it lobbied intensely against the new Dodd-Frank Act and refused to resurrect Glass-Steagall.

The cost of such cynicism has leached deep into America, finding expression in Tea Partiers and Occupiers and millions of others who think the Street has sold us out. 

 

The Purpose of Occupy Wall Street Is to Occupy Wall Street

by Michael Moore

March 14, 2012   |    This article appeared in the April 2, 2012 edition of The Nation.

Occupy Wall Street. What other political movement in modern times has won the sympathy and/or support of the majority of the American public—in less than two months? How did this happen? I think it was a revolt that has been percolating across the country since Reagan fired the first air traffic controller. Then, on September 17, 2011, a group of (mostly) young adults decided to take direct action. And this action struck a raw nerve, sending a shock wave throughout the United States, because what these kids were doing was what tens of millions of people wished they could do. The people who have lost their jobs, their homes, their “American dream”—they cathartically cheered on this ragtag bunch who got right in the face of Wall Street and said, “We’re not leaving until you give us our country back!”

By purposely not creating a formal, hierarchical organization with rules and dues and structure and charismatic leaders and spokespeople—all the things their parents told them they would need in order to get anything done—this new way allowed people from all over the country to feel like they were part of the rebellion by simply deciding that they were part of the rebellion. You want to occupy your local bank—do it! You want to occupy your college board of trustees—done! You want to occupy Oakland or Cincinnati or Grass Valley—be our guest! This is your movement, and you can make it what you want it to be.

In the old days, if you were starting a movement, you had to first educate the public about the problem you were trying to fix, and then you had to persuade them to join you. To move America toward a nonracist, nonsexist, nonhomophobic, peace-seeking nation took years—decades—and we’re still not there. But with Occupy Wall Street, you don’t have to convince the majority of Americans that greed rules Wall Street, that the banks have no one’s interests but their own at heart or that corporate America is out to squeeze every last bit of labor and wages out of everyone’s pocket. Everybody gets it. Even those who oppose it. The hardest part of this or any movement—building a majority—has already happened. The people are with us. So now what do we do?

Here’s what we don’t do: don’t turn Occupy Wall Street into another bureaucratic, top-down organization. That will certainly kill it. Baby boomers who grew up working within traditional organizations need to calm down and not shoehorn this movement into the old paradigm of “Let’s elect people to office and then lobby them to pass good laws!” Let Occupy take its natural course. The candidates for office that we need are in this movement. (Are you one of them? Why not? Someone has to do it, and it would be better if it was you!) The laws that must be enacted to make this a more just nation will come in due time. And not ten years from now; some of this will happen this year. The leading candidate for Congress from my hometown of Flint, Michigan, has already taken a pledge to make “getting money out of politics” his top goal once in office. Others have joined him. We need to vote for them and then hold them to it.

But right now, Occupy has to continue as a bold, in-your-face movement—occupying banks, corporate headquarters, board meetings, campuses and Wall Street itself. We need weekly—if not daily—nonviolent assaults right on Wall Street. You have no idea how many people across the country would come to New York City to participate in wave after wave of arrests as they/we attempt to shut down the murderous, thieving machine that is Wall Street. Forty-five thousand people a year die simply because they don’t have health insurance. Do you think they have any relatives, friends, neighbors, parishioners who might be a little upset? How about the 4 million people losing their homes to the banks? Or the millions of students being crushed by debt? I think we could organize a few of them to shut down Wall Street.

And in town after town across America, people need to do similar things, but on a local level. Evictions of people who have been foreclosed upon must be met by citizens occupying the front door of the repossessed home and nonviolently blocking the bank from tossing the family out to the curb. When a neighbor can’t get the medical procedure she needs, people in town must occupy the hospital or the lobby of the insurance company. When a university raises students’ tuition for the umpteenth time, those students must occupy the administration’s office until the board of trustees relents.

It’s important to remember, though, that Occupy Wall Street is about occupying Wall Street. The other Occupies that have sprung up around the country are in solidarity, and while they attack the tentacles and the symptoms of the beast that exist locally everywhere, the head can be chopped off only in one place—and that place is in downtown Manhattan, where this movement started and must continue.

Our kids—the heart and soul of this movement—have watched us for years beating our heads against the walls of power, always marching on Washington, sending in checks to the environmental groups, giving up red meat—and what they got from this is that they are the first generation who will now be worse off than their parents. They still love us (which is remarkable when you think of the world we’ve handed them), but they are taking a different path from ours. Let them. The kids are all right. Do they know where their path will lead? Not necessarily—but that’s the beauty of Occupy Wall Street. The mystery of what’s ahead is the lure. Millions want in on that adventure because, deep down, they know they have no choice. And they know that there’s more of them than the men on Wall Street who currently occupy America. They have no choice but to win.

Click here to read this article in Spanish.

Bank of America: Too Crooked to Fail

The bank has defrauded everyone from investors and insurers to homeowners and the unemployed. So why does the government keep bailing it out?

By Matt Taibbi, March 14, 2012 from Rolling Stone

At least Bank of America got its name right. The ultimate Too Big to Fail bank really is America, a hyper- gluttonous ward of the state whose limitless fraud and criminal conspiracies we'll all be paying for until the end of time. Did you hear about the plot to rig global interest rates? The $137 million fine for bilking needy schools and cities? The ingenious plan to suck multiple fees out of the unemploy- ment checks of jobless workers? Take your eyes off them for 10 seconds and guaranteed, they'll be into some shit again: This bank is like the world's worst-behaved teenager, taking your car and running over kittens and fire hydrants on the way to Vegas for the weekend, maxing out your credit cards in the three days you spend at your aunt's funeral. They're out of control, yet they'll never do time or go out of business, because the government remains creepily committed to their survival, like overindulgent parents who refuse to believe their 40-year-old live-at-home son could possibly be responsible for those dead hookers in the backyard.

It's been four years since the government, in the name of preventing a depression, saved this megabank from ruin by pumping $45 billion of taxpayer money into its arm. Since then, the Obama administration has looked the other way as the bank committed an astonishing variety of crimes – some elaborate and brilliant in their conception, some so crude that they'd be beneath your average street thug. Bank of America has systematically ripped off almost everyone with whom it has a significant business relationship, cheating investors, insurers, depositors, homeowners, shareholders, pensioners and taxpayers. It brought tens of thousands of Americans to foreclosure court using bogus, "robo-signed" evidence – a type of mass perjury that it helped pioneer. It hawked worthless mortgages to dozens of unions and state pension funds, draining them of hundreds of millions in value. And when it wasn't ripping off workers and pensioners, it was helping to push insurance giants like AMBAC into bankruptcy by fraudulently inducing them to spend hundreds of millions insuring those same worthless mortgages.

But despite being the very definition of an unaccountable corporate villain, Bank of America is now bigger and more dangerous than ever. It controls more than 12 percent of America's bank deposits (skirting a federal law designed to prohibit any firm from controlling more than 10 percent), as well as 17 percent of all American home mortgages. By looking the other way and rewarding the bank's bad behavior with a massive government bailout, we actually allowed a huge financial company to not just grow so big that its collapse would imperil the whole economy, but to get away with any and all crimes it might commit. Too Big to Fail is one thing; it's also far too corrupt to survive.

All the government bailouts succeeded in doing was to make the bank even more prone to catastrophic failure – and now that catastrophe might finally be at hand. Bank of America's share price has plunged into the single digits, and the bank faces battles in courtrooms all over America to avoid paying back the hundreds of billions it stole from everyone in sight. Its credit rating, already downgraded to a few rungs above junk status, could plummet with the next bad analyst report, causing a frenzied rush to the exits by creditors, investors and stockholders – an institutional run on the bank.

They're in deep trouble, but they won't die, because our current president, like the last one, apparently believes it's better to project a false image of financial soundness than to allow one of our oligarchic banks to collapse under the weight of its own corruption. Last year, the Federal Reserve allowed Bank of America to move a huge portfolio of dangerous bets into a side of the company that happens to be FDIC-insured, putting all of us on the hook for as much as $55 trillion in irresponsible gambles. Then, in February, the Justice Department's so-called foreclosure settlement, which will supposedly provide $26 billion in relief for ripped-off homeowners, actually rewarded the bank with a legal waiver that will allow it to escape untold billions in lawsuits. And this month the Fed will release the results of its annual stress test, in which the bank will once again be permitted to perpetuate its fiction of solvency by grossly overrating the mountains of toxic loans on its books. At this point, the rescue effort is so sweeping and elaborate that it goes far beyond simply gouging the tax dollars of millions of struggling families, many of whom have already been ripped off by the bank – it's making the government, and by extension all of us, full-blown accomplices to the fraud.

Anyone who wants to know what the Occupy Wall Street protests are all about need only look at the way Bank of America does business. It comes down to this: These guys are some of the very biggest assholes on Earth. They lie, cheat and steal as reflexively as addicts, they laugh at people who are suffering and don't have money, they pay themselves huge salaries with money stolen from old people and taxpayers – and on top of it all, they completely suck at banking. And yet the state won't let them go out of business, no matter how much they deserve it, and it won't slap them in jail, no matter what crimes they commit. That makes them not bankers or capitalists, but a class of person that was never supposed to exist in America: royalty.

Self-appointed royalty, it's true – but just as dumb and inbred as the real thing, and every bit as expensive to support. Like all royals, they reached their position in society by being relentlessly dedicated to the cause of Bigness, Unaccountability and the Worthlessness of Others. And just like royals, they spend most of their lives getting deeper in debt, and laughing every year when our taxes go to covering their whist markers. Two and a half centuries after we kicked out the British, it's really come to this?

Why I Am Leaving Goldman Sachs

Published on Wednesday, March 14, 2012 by The New York Times

by Greg Smith

Today is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

People walk to work outside the Goldman Sachs headquarters in New York in 2010. (AP/Mark Lennihan)

To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.

It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.

But this was not always the case. For more than a decade I recruited and mentored candidates through our grueling interview process. I was selected as one of 10 people (out of a firm of more than 30,000) to appear on our recruiting video, which is played on every college campus we visit around the world. In 2006 I managed the summer intern program in sales and trading in New York for the 80 college students who made the cut, out of the thousands who applied.

I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work.

When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd C. Blankfein, and the president, Gary D. Cohn, lost hold of the firm’s culture on their watch. I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.

Over the course of my career I have had the privilege of advising two of the largest hedge funds on the planet, five of the largest asset managers in the United States, and three of the most prominent sovereign wealth funds in the Middle East and Asia. My clients have a total asset base of more than a trillion dollars. I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. This view is becoming increasingly unpopular at Goldman Sachs. Another sign that it was time to leave.

How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.

What are three quick ways to become a leader? a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit. b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them. c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.

Today, many of these leaders display a Goldman Sachs culture quotient of exactly zero percent. I attend derivatives sales meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them. If you were an alien from Mars and sat in on one of these meetings, you would believe that a client’s success or progress was not part of the thought process at all.

It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.

It astounds me how little senior management gets a basic truth: If clients don’t trust you they will eventually stop doing business with you. It doesn’t matter how smart you are.

These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out” and “getting paid” doesn’t exactly turn into a model citizen.

When I was a first-year analyst I didn’t know where the bathroom was, or how to tie my shoelaces. I was taught to be concerned with learning the ropes, finding out what a derivative was, understanding finance, getting to know our clients and what motivated them, learning how they defined success and what we could do to help them get there.

My proudest moments in life — getting a full scholarship to go from South Africa to Stanford University, being selected as a Rhodes Scholar national finalist, winning a bronze medal for table tennis at the Maccabiah Games in Israel, known as the Jewish Olympics — have all come through hard work, with no shortcuts. Goldman Sachs today has become too much about shortcuts and not enough about achievement. It just doesn’t feel right to me anymore.

I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm — or the trust of its clients — for very much longer.

© 2012 Greg Smith

Greg Smith is resigning today as a Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa.

The Difference Between Private and Public Morality

by Robert Reich

Tuesday, March 13, 2012

Republicans have morality upside down. Santorum, Gingrich, and even Romney are barnstorming across the land condemning gay marriage, abortion, out-of-wedlock births, access to contraception, and the wall separating church and state.

But America’s problem isn’t a breakdown in private morality. It’s a breakdown in public morality. What Americans do in their bedrooms is their own business. What corporate executives and Wall Street financiers do in boardrooms and executive suites affects all of us.

There is moral rot in America but it’s not found in the private behavior of ordinary people. It’s located in the public behavior of people who control our economy and are turning our democracy into a financial slush pump. It’s found in Wall Street fraud, exorbitant pay of top executives, financial conflicts of interest, insider trading, and the outright bribery of public officials through unlimited campaign “donations.”

Political scientist James Q. Wilson, who died last week, noted that a broken window left unattended signals that no one cares if windows are broken. It becomes an ongoing invitation to throw more stones at more windows, ultimately undermining moral standards of the entire community

The windows Wall Street broke in the years leading up to the crash of 2008 remain broken. Despite financial fraud on a scale not seen in this country for more than eighty years, not a single executive of a major Wall Street bank has been charged with a crime.

Since 2009, the Securities and Exchange Commission has filed 25 cases against mortgage originators and securities firms. A few are still being litigated but most have been settled. They’ve generated almost $2 billion in penalties and other forms of monetary relief, according to the Commission. But almost none of this money has come out of the pockets of CEOs or other company officials; it has come out of the companies — or, more accurately, their shareholders. Federal prosecutors are now signaling they won’t even bring charges in the brazen case of MF Global, which lost billions of dollars that were supposed to be kept safe.

Nor have any of the lawyers, accountants, auditors, or top executives of credit-rating agencies who aided and abetted Wall Street financiers been charged with doing anything wrong.

And the new Dodd-Frank law that was supposed to prevent this from happening again is now so riddled with loopholes, courtesy of Wall Street lobbyists, that it’s almost a sham. The Street prevented the Glass-Steagall Act from being resurrected, and successfully fought against limits on the size of the largest banks.

Windows started breaking years ago. Enron’s court-appointed trustee reported that bankers from Citigroup and JP Morgan Chase didn’t merely look the other way; they dreamed up and sold Enron financial schemes specifically designed to allow Enron to commit fraud. Arthur Andersen, Enron’s auditor, was convicted of obstructing justice by shredding Enron documents, yet most of the Andersen partners who aided and abetted Enron were never punished.

Americans are entitled to their own religious views about gay marriage, contraception, out-of-wedlock births, abortion, and God. We can be truly free only if we’re confident we can go about our private lives without being monitored or intruded upon by government, and can practice whatever faith (or lack of faith) we wish regardless of the religious beliefs of others. A society where one set of religious views is imposed on a large number of citizens who disagree with them is not a democracy. It’s a theocracy.

But abuses of public trust such as we’ve witnessed for years on the Street and in the executive suites of our largest corporations are not matters of private morality. They’re violations of public morality. They undermine the integrity of our economy and democracy. They’ve led millions of Americans to conclude the game is rigged.

Regressive Republicans have no problem hurling the epithets “shameful,” “disgraceful,” and “contemptible” at private moral decisions they disagree with. Rush Limbaugh calls a young woman a “slut” just for standing up for her beliefs about private morality.

Republicans have staked out the moral low ground. It’s time for Democrats and progressives to stake out the moral high ground, condemning the abuses of economic power and privilege that characterize this new Gilded Age – business deals that are technically legal but wrong because they exploit the trust that investors or employees have place[d] in those businesses, pay packages that are ludicrously high compared with the pay of average workers, political donations so large as to breed cynicism about the ability of their recipients to represent the public as a whole.

An economy is built on a foundation of shared morality. Adam Smith never called himself an economist. The separate field of economics didn’t exist in the eighteenth century. He called himself a moral philosopher. And the book he was proudest of wasn’t “The Wealth of Nations,” but his “Theory of Moral Sentiments” – about the ties that bind people together into societies.

Twice before progressive[s] have saved capitalism from its own excesses by appealing to public morality and common sense. First in the early 1900s, when the captains for American industry had monopolized the economy into giant trusts, American politics had sunk into a swamp of patronage and corruption, and many factory jobs were unsafe – entailing long hours of work at meager pay and often exploiting children. In response, we enacted antitrust, civil service reforms, and labor protections.

And then again in 1930s after the stock market collapsed and a large portion of American workforce was unemployed. Then we regulated banks and insured deposits, cleaned up stock market, and provided social insurance to the destitute. 

It’s time once again to save capitalism from its own excesses — and to base a new era of reform on public morality and common sense.

The Democrats Who Unleashed Wall Street and Got Away With It

Published on Thursday, February 2, 2012 by TruthDig.com

by Robert Scheer

That Lawrence Summers, a president emeritus of Harvard, is a consummate distorter of fact and logic is not a revelation. That he and Bill Clinton, the president he served as treasury secretary, can still get away with disclaiming responsibility for our financial meltdown is an insult to reason.

Yet, there they go again. Clinton is presented, in a fawning cover story in the current edition of Esquire magazine, as “Someone we can all agree on. ... Even his staunchest enemies now regard his presidency as the good old days.” In a softball interview, Clinton is once again allowed to pass himself off as a job creator without noting the subsequent loss of jobs resulting from the collapse of the housing derivatives bubble that his financial deregulatory policies promoted.Former presidents George W. Bush and Bill Clinton, right, share a laugh in 2006. Both men share blame for the economic collapse of 2008. It was Clinton’s financial deregulation that legalized the merger of commercial and investment banks, creating institutions that were both risky and too-big-to-fail.

At least Summers, in a testier interview by British journalist Krishnan Guru-Murthy of Channel 4 News, was asked some tough questions about his responsibility as Clinton’s treasury secretary for the financial collapse that occurred some years later. He, like Clinton, still defends the reversal of the 1933 Glass-Steagall Act, a 1999 repeal that destroyed the wall between investment and commercial banking put into place by Franklin Roosevelt in response to the Great Depression.

“I think the evidence is that I am right about that. If you look at the big players, Lehman and Bear Stearns were both standalone investment banks,” Summers replied, referring to two investment banks allowed to fold. Summers is very good at obscuring the obvious truth—that the too-big-to-fail banks, made legal by Clinton-era deregulation, required taxpayer bailouts.

The point of Glass-Steagall was to prevent jeopardizing commercial banks holding the savings of average citizens. Summers knows full well that the passage of the repeal of Glass-Steagall was pushed initially by Citigroup, a mammoth merger of investment and commercial banking that create the largest financial institution in the world, an institution that eventually had to be bailed out with taxpayer funds to avoid economic disaster for millions of ordinary Americans. He also knows that Citigroup—where Robert Rubin, who preceded Summers as Clinton’s treasury secretary, played leading roles during a critical time—specialized in precisely the mortgage and other debt packages and insurance scams that were the source of America’s economic crisis.

Even Clinton, in a rare moment of honest appraisal of his record, conceded that his signing of the Commodity Futures Modernization Act (CFMA), legalizing those credit default swaps and collateralized debt obligations, was based on bad advice. That advice would have had to come from Summers, his point man pushing the CFMA legislation, which Clinton signed into law during his lame-duck days.

When the British interviewer reminded him of Clinton’s comment, Summers, as is his style, simply bristled: “Again, you make everything so simple, when in fact it’s complicated. Would it have been better if the whole financial reform legislation had passed in 1999, or 1998, or 1992? Yes, of course it would have been better. But … at the time Bill Clinton was president, there essentially were no credit default swaps. So the issue that became a serious problem really wasn’t an issue that was on the horizon.”

That is a lie. Credit default swaps had been sold at least since 1991, and collateralized debt obligations of all sorts quickly became the rage during the Clinton years. Summers surely remembers that Brooksley Born, the legal expert on such matters that Clinton appointed to head the Commodity Futures Trading Commission (CFTC), warned about the ballooning danger of those unregulated derivatives. Born, who served with Summers as one of four members of the President’s Working Group on Financial Markets, tried repeatedly and in vain to get her colleagues to act. When her pleas fell on deaf ears she issued a “concept release” calling attention to an unregulated derivatives market that was even then spiraling out of control.

The CFMA legislation that Summers pushed and Clinton signed was a specific rebuke to Born’s efforts. As Summers testified at the time before a Senate committee: “As you know, Mr. Chairman, the CFTC’s recent concept release has been a matter of great concern, not merely to Treasury, but to all those with an interest in the OTC [over-the-counter] derivatives market. In our view, the Release has cast the shadow of regulatory uncertainty over an otherwise thriving market—raising risks for stability and competitiveness of American derivative trading. We believe it quite important that the doubts be eliminated.”

Those doubts were eliminated by the new law exempting all of that troubling OTC derivatives trading from all existing regulations and regulatory agencies. Summers argued in his congressional testimony that there was no reason for any government regulation of what turned out to be tens of trillions of dollars in toxic assets:

“First, the parties to these kinds of contracts are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies and most of which are already subject to basic safety and soundness regulation under existing banking and securities law.

“Second, given the nature of the underlying assets involved—namely supplies of financial exchange and other financial instruments—there would seem to be little scope for market manipulation of the kind seen in traditional agricultural commodities, the supply of which is inherently limited and changeable.”

Has any economist ever gotten it so wrong?

Robert Scheer is editor of Truthdig.com and a regular columnist for The San Francisco Chronicle.

First World Governments Drowning in Debt

by John Lawrence

 

In her excellent book, "Web of Debt," Ellen Brown questions the whole notion that governments, whether they be the US or the Eurozone, should have to go into debt to private bankers such as Goldman Sachs and Deutsche Bank to get the money they need to finance their operations. Consider the Federal Reserve which is the primary creator of the money supply in the US. It is neither Federal nor is it a reserve. It is a private bank which creates money as an accounting entry on a computer screen. Recently, it loaned over $7 trillion to private banks at a ridiculously low .01% interest rate. That wasn't money it held in reserve; it was money that was "printed" or rather created out of whole cloth. And who do you think sits on the Board of the privately owned Federal Reserve? Jamie Dimon, CEO of JPMorgan Chase! Do you think that the Federal Reserve acts in the interest of anyone other than the large, too big to fail, banks? The banking system prints or creates money all the time, and not only central banks do it. It has been a longstanding practice of banks everywhere to loan out more money than they hold in deposits. This is called "fractional reserve" banking. For example, when a bank takes in $100 in deposits, it will loan out $1000 figuring that that will be sufficient for depositors who wish to redeem their deposits. Unless there's a run on the bank, that usually is sufficient. So money is created by the private banking system all the time and on a daily basis. Many multiples of the banks' deposits are then loaned out at interest.

Individuals, businesses, corporations and governments then borrow money from private banks to meet their needs for expansion and simply to pay their bills. The US government, for example, borrows the money it needs to function essentially from Goldman Sachs and other large banks and then pays interest to those banks. This happens because the US sells Treasury bonds to those large institutions in return for money to fund its wars and pay social security and medicare recipients among other things. The taxpayers are then on the hook for paying the interest on these bonds. Goldman Sachs got the money in the first place from the Federal Reserve so that by means of a little bit of subterfuge (the Federal Reserve cannot by law loan money directly to the US government), money is transferred from the privately owned Federal Reserve bank, which it created out of thin air, to the US government with interest to be paid by the taxpayers to private banking interests.  This begs the question that Ms. Brown makes a central point of her book: if a private central bank can increase the money supply by creating money out of thin air as an accounting entry on a computer screen, why can't the government itself create the money to fund its needs? In particular, if the government created the money instead of the private banking system, taxpayers wouldn't be on the hook for the interest payments which are rapidly eating up an ever increasing share of the Federal budget. Interest on the national debt is projected to be $241.6 billion in FY 2012; it will only increase every year as the national debt goes up. The question is why should US taxpayers pay interest to private bankers on the money loaned to the US government which was created by private bankers when the US government itself could just as well have created the money interest free?

The same line of reasoning holds for the Eurozone which is caught up in a debt crisis in which the private banking system is raising interest rates for countries that it considers weak. The rising interest rates make countries such as Spain and Italy even weaker and all this is being fueled by speculators who are shorting the bonds of these countries. Derivative trading such as shorting drives up interest rates since it makes it seem that investors are selling rather than buying the bonds of those countries.

The process of shorting can be simply explained as follows. Suppose my neighbor buys a lawnmower for $500. I then ask to borrow my neighbor's lawnmower to mow my yard. As I'm mowing, another neighbor drives by and offers to buy the mower for $450. As it happens, I know about a sale at the local Sears where I can buy the same exact lawnmower for $400. So I sell the lawnmower for $450., rush down to Sears and buy another one for $400., return the mower to the neighbor I originally borrowed it from and then pocket the $50. profit. Now in the dark world of derivatives markets it's not even necessary to borrow anything from a preexisting owner in order to short sell. These trades are called "naked shorts." The whole effect will drive up interest rates in Greece and Italy making their borrowing costs to turn over their loans even more expensive and hasten the day when these countries will default. Speculators stand to make big money if and when a Eurozone country does default because they have placed large bets on this outcome. It is to be noted that the European Central Bank (ECB) has the same deal that the US Federal Reserve has in that it can't give money directly to one of its member countries. Monies have to be funneled through banks. This means that they are subject to the machinations of the bond market and speculators. If the ECB created the money directly and then loaned it to member countries, the interest rate could be maintained constant as speculators would be eliminated and it would be lower as the private bankers would not be getting their cut.

If the whole notion of a central government creating the money supply as opposed to a private central bank creating it seems radical to you, please bear in mind that this is exactly what Abraham Lincoln did to fund the Civil War and the economic expansion following it including the transcontinental railroad, the land grant colleges and the Homestead Act which gave away free land to settlers in the west. Greenbacks were government created currency which was spent into the market. Today Federal Reserve notes are created by the privately owned Federal Reserve and are the official US currency. Ellen Brown maintains that any government can create a fiat currency. This simply means that the government created currency is declared to be the legal currency of that government. It doesn't have to be backed by gold or anything else. It is the official currency just because the government says it is. Ellen Brown characterizes the Greenback era as follows:

How was all this accomplished with a Treasury that was completely broke and a Congress that hadn't been paid themselves? ... Lincoln tapped into the same cornerstone that had gotten the impoverished colonists through the American Revolution and a long period of internal development before that: he authorized the government to issue its own paper fiat money. National control was reestablished over banking, and the economy was jump-started with a 600 percent increase in government spending and cheap credit directed at production. A century later, Franklin Roosevelt would use the same techniques to pull the country through the Great Depression; but Roosevelt's New Deal would be financed with borrowed money. Lincoln's government used a system of payment that was closer to the medieval tally. Officially called United States notes, these nineteenth century tallies were popularly called "Greenbacks" because they were printed on the back with green ink (a feature the dollar retains today). They were basically just receipts acknowledging work done or goods delivered, which could be traded in the community for an equivalent value of goods or services. The Greenbacks represented man-hours rather than borrowed gold. Lincoln is quoted as saying, "The wages of men should be recognized as more important than the wages of money." Over 400 million Greenback dollars were printed and used to pay soldiers and government employees, and to buy supplies for the war. The Greenback system was not actually Lincoln's idea. but when pressure grew in Congress for the plan, he was quick to endorse it. The South had seceded from the Union soon after his election in 1860. To fund the War between the States, these Eastern banks had offered a loan package that was little short of extortion - $150 million advanced at interest rates of 24 to 36 percent. Lincoln knew the loan would be impossible to pay off. He took the revolutionary approach because he had no other real choice. The government could either print its own money or succumb to debt slavery to the bankers.

So the war and the economic development following it were financed with goverment created fiat money, the Greenback. This would be perfect today for funding the $2 trillion in infrastructure repair and rebuilding that the IEEE claims is needed - in other words an infrastructure bank. This would solve a lot of the US' unemployment problems as well as bringing the US infrastructure up to par with China and other countries which are modernizing their infrastructure at rates far exceeding the US. The Eurozone ECB could also print or create euros without borrowing or funneling them through private bankers and subjecting the economies of certain countries to the whims of speculators. For the US it would be simple to move the Federal Reserve into the Treasury Department, transfer ownership to the public sector and keep the fact that the chairman would be appointed by the President. To keep its autonomy, Congress should not have the ability to interfere with the newly created Federal Reserve just as the situation exists now. So what would change? Only that the money created would be the equivlent of Greenbacks which would be non-interest bearing notes. Government created money would not be money that the government would have to pay interest on to private sector banks. These Greenbacks could coexist with Federal Reserve notes so that there would be two forms of currency in circulation both of which would be legal tender. Therefore, Federal Reserve notes would not have to be recalled. The new system could be created overnight with a minimum of disruption to commerce.

The Eurozone probably operates the same way. I'm not an expert but I surmise that the large European banks such as Deutsche bank, Societe Generale and ING loan money to Eurozone countries at interest. Even Goldman Sachs, since it is an international bank, probably has its finger in the pie of Eurozone money creation.  Even money created by the ECB needs to be funneled through these banks before it gets into the coffers of the respective Eurozone countries. This means that not only are countries such as Greece and Italy paying interest to the large European and international banks but the interest rates they are paying are subject to market speculation which drives them up even more. If the ECB issued euros directly instead of letting the large banks do it, the interest rate could be carefully controlled, the rates wouldn't be subject to speculation and the interest paid would go into the coffers of the ECB instead of into the coffers of large private banks.

Individuals and families in the US and throughbout the world are increasingly indebted to private banks for mortgage debt, student loan debt and credit card debt. Easy credit and low initial interest rates as well as declining wages have induced much of the population to go into debt in the same way that countries have gone into debt. Ultimately, these levels of debt are unsustainable especially if today's historical low interest rates start to rise. Of course the banks' major goal is to have everyone in debt paying interest money to them as a major part of their expenditures. If everyone is a debt slave, the banks are in the position of owning most of society's assets. Ellen Brown's ideas about taking money creation out of private bankers' hands and putting it into the hands of central governments strikes at the core of capitalist economics which assumes that money creation remains entirely privatized. However, other countries such as China have shown that government owned large banks can be a boon to economic development and growth.

Also in the US state owned banks such as the Bank of North Dakota maintain that state in a healthy economic condition compared to the US as a whole. Interest collected on loans goes back into state coffers defraying taxpayer expenses. So lower taxes are the result of a state owned rather than a privately owned bank. The same could be true for countries as well. Also loans can be more carefully controlled so that they go for socially useful purposes rather than fueling speculative investment. Finally, many countries including China and Norway have sovereign wealth funds which act to make those countries more creditworthy than countries which have no assets and only debts. As any banker knows, an individual's creditworthiness represents the difference between his assets and his debts. The same holds true also for countries. If governments created their own money, it could be loaned directly to families that are being foreclosed on instead of relying on private bankers to work out deals with them which they have been reluctant to do thus exacerbating the foreclosure crisis. Greater leniency could also be granted to student loan debtors than is the case now.

Lincoln saved the US an incredible amount of interest repayments by issuing Greenbacks instead of borrowing the money:

In 1972, the United States Treasury Department was asked to compute the amount of interest that would have been paid if the $400 million in Greenbacks had been borrowed from the banks instead. According to the Treasury Department's calculations, in his short tenure Lincoln saved the government a total of $4 billion in interest, just by avoiding this $400 million loan.

Finally, a quote from Thomas Edison from an interview in the 1921 New York Times:

If the Nation can issue a dollar bond it can issue a dollar bill, The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%. Whereas the currency, the honest sort provided by the Constitution, pays noboldy but those who contribute in some useful way. It  is absurd to say that our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People.

Therefore, the "full faith and credit" of the US government and the ECB could apply to currency as well as bonds, and private bankers and speculators could be eliminated from the loop.

Worker-Owners of America, Unite!

By GAR ALPEROVITZ

Published: December 14, 2011 by the New York Times

College Park, Md.

THE Occupy Wall Street protests have come and mostly gone, and whether they continue to have an impact or not, they have brought an astounding fact to the public’s attention: a mere 1 percent of Americans own just under half of the country’s financial assets and other investments. America, it would seem, is less equitable than ever, thanks to our no-holds-barred capitalist system.

But at another level, something different has been quietly brewing in recent decades: more and more Americans are involved in co-ops, worker-owned companies and other alternatives to the traditional capitalist model. We may, in fact, be moving toward a hybrid system, something different from both traditional capitalism and socialism, without anyone even noticing.

Some 130 million Americans, for example, now participate in the ownership of co-op businesses and credit unions. More than 13 million Americans have become worker-owners of more than 11,000 employee-owned companies, six million more than belong to private-sector unions.

And worker-owned companies make a difference. In Cleveland, for instance, an integrated group of worker-owned companies, supported in part by the purchasing power of large hospitals and universities, has taken the lead in local solar-panel installation, “green” institutional laundry services and a commercial hydroponic greenhouse capable of producing more than three million heads of lettuce a year.

Local and state governments are likewise changing the nature of American capitalism. Almost half the states manage venture capital efforts, taking partial ownership in new businesses. Calpers, California’s public pension authority, helps finance local development projects; in Alaska, state oil revenues provide each resident with dividends from public investment strategies as a matter of right; in Alabama, public pension investing has long focused on state economic development.

Moreover, this year some 14 states began to consider legislation to create public banks similar to the longstanding Bank of North Dakota; 15 more began to consider some form of single-payer or public-option health care plan.

Some of these developments, like rural co-ops and credit unions, have their origins in the New Deal era; some go back even further, to the Grange movement of the 1880s. The most widespread form of worker ownership stems from 1970s legislation that provided tax benefits to owners of small businesses who sold to their employees when they retired. Reagan-era domestic-spending cuts spurred nonprofits to form social enterprises that used profits to help finance their missions.

Recently, growing economic pain has provided a further catalyst. The Cleveland cooperatives are an answer to urban decay that traditional job training, small-business and other development strategies simply do not touch. They also build on a 30-year history of Ohio employee-ownership experiments traceable to the collapse of the steel industry in the 1970s and ’80s.

Further policy changes are likely. In Indiana, the Republican state treasurer, Richard Mourdock, is using state deposits to lower interest costs to employee-owned companies, a precedent others states could easily follow. Senator Sherrod Brown, Democrat of Ohio, is developing legislation to support worker-owned strategies like that of Cleveland in other cities. And several policy analysts have proposed expanding existing government “set aside” procurement programs for small businesses to include co-ops and other democratized enterprises.

If such cooperative efforts continue to increase in number, scale and sophistication, they may suggest the outlines, however tentative, of something very different from both traditional, corporate-dominated capitalism and traditional socialism.

It’s easy to overestimate the possibilities of a new system. These efforts are minor compared with the power of Wall Street banks and the other giants of the American economy. On the other hand, it is precisely these institutions that have created enormous economic problems and fueled public anger.

During the populist and progressive eras, a decades-long buildup of public anger led to major policy shifts, many of which simply took existing ideas from local and state efforts to the national stage. Furthermore, we have already seen how, in moments of crisis, the nationalization of auto giants like General Motors and Chrysler can suddenly become a reality. When the next financial breakdown occurs, huge injections of public money may well lead to de facto takeovers of major banks.

And while the American public has long supported the capitalist model, that, too, may be changing. In 2009 a Rasmussen poll reported that Americans under 30 years old were “essentially evenly divided” as to whether they preferred “capitalism” or “socialism.”

A long era of economic stagnation could well lead to a profound national debate about an America that is dominated neither by giant corporations nor by socialist bureaucrats. It would be a fitting next direction for a troubled nation that has long styled itself as of, by and for the people.

Gar Alperovitz, a professor of political economy at the University of Maryland and a founder of the Democracy Collaborative, is the author of “America Beyond Capitalism.”

Ellen Brown - Web of Debt - Part 2

 

Ellen Brown - Web of Debt - Part 1

 

The Remarkable Political Stupidity of the Street

by Robert Reich

Friday, December 9, 2011

Wall Street is its own worst enemy. It should have welcomed new financial regulation as a means of restoring public trust. Instead, it’s busily shredding new regulations and making the public more distrustful than ever.

The Street’s biggest lobbying groups have just filed a lawsuit against the Commodities Futures Trading Commission, seeking to overturn its new rule limiting speculative trading.

For years Wall Street has speculated like mad in futures markets – food, oil, other commodities – causing prices to fluctuate wildly. The Street makes bundles from these gyrations, but they have raised costs for consumers.

In other words, a small portion of what you and I pay for food and energy has been going into the pockets of Wall Street. It’s just another hidden redistribution from the middle class and poor to the rich.

The new Dodd-Frank law authorizes the Commodity Futures Trading Commission to limit such speculative trading. The commission considered 15,000 comments, largely from the Street. It did numerous economic and policy analyses, carefully weighing the benefits to the public of the new regulation against its costs to the Street. It even agreed to delay enforcement of the new rule for at least a year.

But this wasn’t enough for the Street. The new regulation would still put a crimp in Wall Street’s profits.

So the Street is going to court. What’s its argument? The commission’s cost-benefit analysis wasn’t adequate.

At first blush it’s a clever ploy. There’s no clear legal standard for an “adequate” weighing of costs and benefits of financial regulations, since both are so difficult to measure. And putting the question into the laps of federal judges gives the Street a huge tactical advantage because the Street has almost an infinite amount of money to hire so-called “experts” (some academics are not exactly prostitutes but they have their price) who will use elaborate methodologies to show benefits have been exaggerated and costs underestimated.

It’s not the first time the Street has used this ploy. Last year, when the Securities and Exchange Commission tried to implement a Dodd-Frank policy making it easier for shareholders to nominate company directors, Wall Street sued the SEC. It alleged the commission’s cost-benefit analysis for the new rule was inadequate.

Last July, a federal appeals court – inundated by Wall Street lawyers and hired-gun “experts” – agreed with the Street. So much for shareholders nominating company directors.

Obviously, government should weigh the costs against the benefits of anything it does. But when it comes to the regulation of Wall Street, one overriding cost doesn’t make it into any individual weighing: The public’s mounting distrust of the entire economic system, generated by the Street’s repeated abuse of the public’s trust.

Wall Street’s shenanigans have convinced a large portion of America that the economic game is rigged.

Yet capitalism depends on trust. Without trust, people avoid even sensible economic risks. They also begin trading in gray markets and black markets. They think that if the big guys cheat in big ways, they might as well begin cheating in small ways. And when they think the game is rigged, they’re easy prey for political demagogues with fast tongues and dumb ideas. 

Tally up these costs and it’s a whopper.

Wall Street has blanketed America in a miasma of cynicism. Most Americans assume the reason the Street got its taxpayer-funded bailout without strings in the first place was because of its political clout. That must be why the banks didn’t have to renegotiate the mortgages of Americans – many of whom, because of the economic collapse brought on by the Street’s excesses, are still under water. Some are drowning.

That must be why taxpayers didn’t get equity stakes in the banks we bailed out – as Warren Buffet got when he bailed out Goldman Sachs. That means when the banks became profitable gain we didn’t get any of the upside gains; we just padded the Street’s downside risks.

The Street’s political clout must be why most top Wall Street executives who were bailed out by taxpayers still have their jobs, have still avoided prosecution, are still making vast fortunes – while tens of millions of average Americans continue to lose their jobs, their wages, their medical coverage, or their homes.

And why the Dodd-Frank bill was filled with loopholes big enough for Wall Street executives and traders to drive their ferrari’s through.

The cost of such cynicism has leeched deep into America, causing so much suspicion and anger that our politics has become a cauldron of rage. It’s found expression in Tea Partiers and Occupiers, and millions of others who think the people at the top have sold us out. 

Every week, it seems, we learn something new about how Wall Street has screwed us. Last week we heard from Bloomberg News (that had to go to court for the information) that in 2009 the Street’s six largest banks borrowed almost half a trillion dollars from the Fed at nearly zero cost – but never disclosed it.

In early 2009, after Citigroup tapped the Fed for almost $100 billion, the bank’s CEO, Vikram Pandit, had the temerity to call Citi’s first quarter the “best since 2007.” Is there another word for fraud?

Finally, everyone knows the biggest banks are too big to fail — and yet, despite this, Congress won’t put a cap on the size of the banks. The assets of the four biggest – J.P. Morgan Chase, Bank of America, Citigroup, and Wells Fargo – now equal 62 percent of total commercial bank assets. That’s up from 54 percent five years ago. Throw in Goldman Sachs and Morgan Stanley, and these six leviathans preside over the American economy like Roman emperors.

Speaking of Rome, if Italy or Greece defaults and Europe’s major banks can’t make payments on their debts to Wall Street, another bailout will surely be required. And the politics won’t be pretty.

There you have it. A federal court will now weigh costs and benefits of a modest rule designed to limit speculative trading in food and energy.

But in coming months and years, the American public will weigh the social costs and social benefits of Wall Street itself. And it wouldn’t surprise me if they decide the costs of the Street as it is far outweigh the benefits.

The result will be caps on the size of banks. Some will be broken up. Glass-Steagall will be resurrected. Some Wall Street bigwigs may even see in the insides of jails.

If so, the Street has only itself to blame.

$7.7 Trillion to Wall Street - Anything to Keep the Banksters Happy!

Saturday 3 December 2011

 

by: Thom Hartmann, Truthout | News Analysis

 

The new One Bank of America Center in Charlotte, N.C., April 11, 2011. (Photo: Chris Keane / The New York Times)

Do you know who Elizabeth Duke is? How about Donald Kohn or Kevin Warsh? No? Well - you should. Because while Congress was debating back in 2008 whether or not to bailout banksters with a $700 billion blank check - these guys and girls were just doing it. They were funneling $7.7 trillion to Wall Street under the table - without one constituent phone call - without worrying about one election - without having to give one explanation.

They were able to do that because they're members of the Federal Reserve Board of Governors - a group of people who are not voted into office, but have the power to completely dictate monetary policy in America. They are not politicians - they're technocrats - they're bankers and financial experts. Technocrats aren't interested in democracy - it takes too long, and often the interests of the majority of voters don't quite line up with the interests of the minority of bankers and foreign investors. Or - to put it in today's terms - the interests of the 99 percent rarely line up with the interests of the 1 percent. That's why - back in 2008 - the technocrats at the Fed weren't interested in waiting for Congress - with all of its open debate and constituent services - to bail out the banks - they just went ahead and did it themselves.

According to documents obtained by Bloomberg News - in 2009 - the Fed dished out $7.7 trillion in no-strings-attached, super-low interest loans to Wall Street's biggest players.That's $7.7 trillion!That's more than half of the total value of EVERYTHING - every single thing produced in America - that same year. $7.7 TRILLION out the door - with no one bothering to inform the electorate about it until now. And since they were super-low interest loans - banks made enormous profits off of them. Six of the nation's biggest banks - like Morgan Stanley and Bank of America - pocketed a not-too-shabby $13 billion in undisclosed profits, thanks to the deal with the technocrats at the Fed. So today - thanks to a decision made by technocrats, and not politicians - the too-big-to-fail banks are even bigger, and Wall Street has raked in more profits in just the last 30 months then they did in the entire eight years leading up to the 2008 financial crisis.

I guess the economic crisis that brought banksters to the ledge ended up being pretty lucrative for them in the long run. But the bigger picture is this: can our democracy survive future financial crises? As the world descends into financial turmoil on fears that the Euro zone may collapse, it's the technocrats who are taking power - replacing elected officials.The clearest example of this is what happened in Greece a few weeks ago. In order to preserve the euro - keep financial markets steady and ensure that foreign investors get what's theirs - the technocrats at the International Monetary Fund and the European Central Bank demanded that Greece take a bailout. Knowing that a bailout would mean more layoffs - higher taxes and less benefits for the Greek people - Greek Prime Minister George Papandreou wanted to hold a national referendum on whether or not to take the bailout, just like Iceland had done a year earlier. He wanted the people - through democracy - to determine their own fate. But that never happened.Just floating the idea cost Papandreou his job - he was forced out of office and replaced by a technocrat, Lucas Papademos, who just so happened to be the former vice president of the European Central Bank.

Probably because when the Icelandic people were asked in a national referendum if they should take austerity cuts to bail out their banksters, they said, overwhelmingly, "No, let the banks fail." But with a technocrat in charge, there will be no vote - a bailout will be shoved down the throat of the Greek people, and so, too, will painful austerity - anything to keep the banksters happy.New York Times op-ed columnist Ross Douthat laid out this new reality of technocrat control in a recent article in which he wrote, "For the inhabitants of Italy and Greece, who have just watched democratically elected governments toppled by pressure from financiers, European Union bureaucrats, and foreign heads of state, it evokes the cold reality of 21st-century politics. Democracy may be nice in theory, but in a time of crisis it's the technocrats who really get to call the shots. National sovereignty is a pretty concept, but the survival of the European common currency comes first."

All signs indicate that we'll be confronted with this problem once again in America - as another financial crisis, be it caused by Europe or some other bubble like student debt or housing, seems like a foregone conclusion at this point. And when it hits the fan - and the American people tell Congress no way in hell will they sign off on another bailout of Wall Street - then the technocrats at the Fed will takeover and our democracy will be irrelevant - just like it was in 2008 and 2009. That's why we, the people, need to take back control of the Fed, and why the people of Europe need to take back control of their central banks and global financial institutions.

Only when the Federal Reserve becomes an instrument of the people to calm the mood swings of the market - and not a piggy bank for transnational banking corporations - can we really protect ourselves from a technocratic takeover in the future. And the way to do it is pretty straightforward - it was Alexander Hamilton's idea back in the George Washington administration. Have the central bank owned by the US government and run by the Treasury Department, so all the profits from banking go directly into the Treasury and you and I pay less in taxes while the banksters on Wall Street can find a job at Wal-Mart.The good people of North Dakota did just this, back in 1919, established something very much like this - the Bank of North Dakota - and it's kept the state in the black, and kept its farmers, manufacturers and students protected from the predations of New York banksters for nearly a century. It's time for every state to charter their own state bank, just like North Dakota did, and for the Treasury Department to either buy the Fed from the for-profit banks that own it, or simply nationalize it.Only when we get control of our money out of the hands of sociopathic banksters will our democracy begin to function for the people instead of just for the banksters.

Mass. Sues Banks Over Deceptive Foreclosure Practices

Published on Thursday, December 1, 2011 by the Associated Press

by Pallavi Gogoi

NEW YORK – Massachusetts sued five major banks Thursday over deceptive foreclosure practices, such as the "robo-signing" of documents, potentially undermining negotiations over the same issue between lenders and state prosecutors across the nation.

The lawsuit named Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), and GMAC. Massachusetts Attorney General Martha Coakley filed the suit.

Massachusetts sued five major banks Thursday over deceptive foreclosure practices, such as the "robo-signing" of documents, potentially undermining negotiations over the same issue between lenders and state prosecutors across the nation. (photo: Taber Andrew Bain)

The complaint claims the banks violated Massachusetts law with "unlawful and deceptive" conduct in the foreclosure process, including unlawful foreclosures, false documentation, robo-signing, and deceptive practices related to loan modifications. In the foreclosure industry, robo-signing is the practice of a bank employee electronically signing thousands of documents and affidavits without manually verifying the information contained in the document or affidavit.

The lawsuit comes as talks have been dragging on for more than a year between major banks and the attorneys general from all 50 states over fraudulent foreclosure practices that drove millions of Americans from their homes following the bursting of the housing bubble.

In October 2010, major banks temporarily suspended foreclosures following revelations of widespread fraudulent foreclosure practices by banks. The talks have been designed to institute new guidelines for mortgage lending nationwide. It was anticipated to be the biggest overhaul of a single industry since the 1998 multistate tobacco settlement.

However, over the past year, several obstacles have arisen. Attorneys general of different states have disagreed over what terms to offer the banks. In September, California announced it would not agree to a settlement over foreclosure abuses that state and federal officials have been working on for more than a year.

Coakley, along with New York Attorney General Eric Schneiderman and Delaware's Beau Biden, have argued that banks should not be protected from future civil liability. Other states, including Kentucky, Minnesota and Nevada, have raised concerns about the extent of legal civil immunity the banks could receive as part of a settlement.

Both sides have also argued over the amount of money that should be placed in a reserve account for improperly foreclosed upon property owners. Many of the larger points of the deal, including a $25 billion cost for the banks, have been worked out, according to people briefed on the internal discussions but who are not authorized to speak publicly about them.

Details of a settlement had been expected to be announced sometime this month.

The lead negotiator on behalf of state prosecutors, Iowa Attorney General Tom Miller, said in a statement that he hopes Massachusetts would join that broader settlement as the final details are worked out.

"We're optimistic that we'll settle on terms that will be in the interests of Massachusetts," Miller said.

© 2011 Associated Press

The Occupy Movement: A Ray of Hope

Stephen H. Unger

Stephen H. Unger
Professor Emeritus
Computer Science and Electrical Engineering
Columbia University

November 29, 2011

For more than three decades, the fruits of technological progress have been harvested by a tiny percentage of the population, who amassed great wealth, while the great majority worked harder, but barely held their own financially [Unger-1]. Tens of millions of Americans descended into, or remained mired in, poverty. Both major political parties, tho differing greatly in style, have been fully complicit in this process [Unger-2]. There was surprisingly little resistance by the victims. Young people were silent as their futures were strip mined via massive outsourcing.

Against this background it is exciting to see the dramatic awakening in the form of the Occupy Wall Street (OWS) movement, which seems to be spreading rapidly. What are the salient issues driving the movement? What are the distinctive features of OWS? How might it succeed in wresting power from the wealthy?

What is OWS about?

The core of the Occupy movement consists of young Americans who see their country being dominated by corporations who care nothing for the welfare of the general population. They see their prospects for satisfying employment rapidly fading. The spirit of the movement is well captured by the chant that seems popular among Occupy groups nationwide: "Banks were bailed out, we were sold out!"

The growing role of money in politics, considered a key factor in the domination of both the Democratic and Republican parties by the 1%, is a principal theme [Unger-3]. ( The idea of publicly funded election campaigns is popular among OWS activists. Other concerns include the way corporate interests have been de-industrializing the US by shutting down production here, building factories abroad, and importing foreign made goods, thus eliminating American jobs in categories ranging from entry level sweepers to engineers and managers. College graduates, unable to find suitable employment, are outraged at being forced to work at jobs such as as retail clerks selling products made in China.

A longer list of Occupy issues, compiled by Occupy Washington, DC organizers, covers more ground, e.g., the endless wars and universal health care, (tho it does not include civil liberty violations, which I believe is a concern of many Occupiers) [Occupy DC]. The cited reference includes a pointer to an essay detailing studies showing that there is very strong popular support for the Occupy positions.

What's Different about OWS?

Quick! Name one OWS leader! A unique feature of OWS is the absence of identifiable leadership. Altho some prominent individuals such as Chris Hedges and Michael Moore have expressed support for, and participated to some extent in, the movement, they in no way can be considered as leaders or spokespeople. Nor have any previously unknown people emerged as conspicuous leaders.

It appears that OWS leadership is widely diffused, with young people playing a dominant role. There are also many occupiers who have been activists for years on issues such as civil rights, environmental matters, and opposition to wars.

Meetings are held in which "facilitators" act only to ensure that everyone gets a chance to speak. Groups of people make various decisions largely by consensus. There are numerous committees organized to perform such functions as food preparation and distribution, medical treatment, security, and the formulation of goals. The claim by OWS people is that, rather than being leaderless, they are all leaders.

Despite this lack of conventional organization, OWS was able to react quickly and effectively to compel Mayor Bloomberg to reverse his decision to evict them from Liberty Park on October 14. When, a month later, the mayor sent in police, at 1:00 am, to clear the park, the response was a series of demonstrations all over the city involving over 32,000 people.

Unlike radical groups of the sixties, OWS has taken a strong position prohibiting the use of drugs and alcohol in their territory. They are also strongly committed to nonviolence and have exhibited great discipline in the face of a number of attacks by police. This has not been easy, as they are also following a policy of inclusion, allowing participation by people with many different backgrounds.

In at least one Occupy camp site, in Washington, DC, those wishing to become part of the group must pledge (by signing a statement) not to carry weapons, use alcohol or illegal drugs, or vandalize or steal property. They must agree to be reasonably quiet from 11 p.m. to 7 a.m [McCartney].

OWS has, thus far, not compiled a specific set of demands or goals, altho it is clear that its central concern is with the control of our government by corporate interests, and the gross economic inequality that this has produced. OWS activists have also spoken out against the wars and violations of habeas corpus and the Bill of Rights, racism, and environmental abuse.

Problems and Pitfalls

The ideal of being open to all makes it difficult for OWS to avoid distractions from immature or unstable people, or from those with hostile or far-out views. When such people post irrelevant or antagonistic items on Occupy websites, it is counterproductive to respond. The best tactic is simply to ignore them.

Perhaps even more serious is the danger from provocateurs sent by government agencies or by political groups trying to discredit OWS, perhaps by instigating violence. Thus far, OWS has been successful in minimizing damage from this quarter, tho there have been some unpleasant incidents.

A more subtle hazard is Democrats trying to "harness" the movement to help them defeat those terrible Republicans [Greenwald]. Of course, a major theme of the Occupy movement is the way Republicans and Democrats engage in mock combat while both are firmly under the control of the corporate elite [Unger-2]. This co-option effort is thus far being successfully resisted.

Perhaps the single most important factor is adhering to nonviolence in the face of rough treatment by police. So far, in most places, OWS has been quite successful, and it is clear that the contrast between violent police action and the disciplined nonviolence of the protestors has been an important element in the growth of the movement. Many people, seeing videos of police deliberately pepper spraying an 84 year old woman, and a number of young women, none of whom were actively resisting, were moved to think about what was going on.

Formulating proposals and demands is a complex matter. Including some specific item might alienate some potential supporters, while omitting that item might alienate others. Probably it would be wise to limit the number of "official" OWS platform planks (if indeed such is needed at all) to a compact set of fundamental items.

Getting Results

There is some satisfaction to be gained by speaking out publicly to protest injustice and to demand a redress of grievances (to use the terminology of the US constitution). But it would be far better to see these demands producing real results.

The Occupy movement has already had a significant effect in stimulating public discussion of issues such as corporate domination, unemployment, and the endless wars. It has almost certainly affected public opinion in a positive way.

But those now running this country as servants of the corporate elite are not going to change direction merely because a lot of Americans are expressing unhappiness with the status quo. Saying "pretty please" to these people will not be effective. Nor will threats that are not credible. So eventually, after demonstrations of various kinds have built up sufficient popular support, action of some sort will be necessary to effectuate actual change.

Violent revolution is not a viable tactic, for several reasons. First, even if successful in overthrowing the government, the use of such means would almost certainly corrupt the outcome. We are not likely to achieve a just and peaceful society by slaughtering a lot of people. Furthermore, the current rulers feel quite comfortable with violence. They are the experts, and would have no difficulty coping with rock throwers, or even gun toters.

It seems to me that the best chance for the overturning the clever system whereby a small elite effectively rules the country by orchestrating a noisy struggle between two political parties is to develop a new political party that, if elected to office, would form a true government "of the people". Such a party might be started from scratch, or the Green Party, already in existence in most states, might be used as the foundation [Unger-2].

The Occupy movement itself might morph into the new party, or it might remain as an independent force focussing on certain core principles, and urging people to support them by voting for the new party, which must pledge to fight to implement them.

References

Glenn Greenwald, "Here's what attempted co-option of OWS looks like", Salon, Nov 19, 2011

Robert McCartney, "Washington's Occupy movement emerges as model for others", Washington Post, November 19, 2011

Occupy DC, "Issues", Occupy Washington, DC

Stephen Unger-1, "The Rich and the Rest of Us: Gross Inequality Versus Democracy", Ends and Means, January 13, 2009

Stephen Unger-2, "Our Fake Two-Party System" Ends and Means, January 5, 2011

Stephen Unger-3, "Money Talks, and Nominates--and Elects", Ends and Means, April 10, 2007

The Democratic Promise of Occupy Wall Street

Published on Monday, November 28, 2011 by The Nation

by William Greider

Regular politics in Washington now resembles an ecological dead zone where truth perishes in a polluted environment. Democrats and Republicans shadowbox over their concocted fiscal crisis, neither willing to tell voters the truth, both eager to avoid blame for the damage they are doing to the country.

Occupy Oakland

Out in the streets, meanwhile, the contrast with brain-dead politics is exhilarating. In Occupy Wall Street, we are witnessing a rare event—the birth of a social movement. Ordinary people are engaging in sustained grassroots protest against the political order and against citizens’ exclusion from the decision-making that governs their lives. They seek to rearrange the distribution of power, and they are doing so by injecting a creative, often playful vitality that has been missing in our decayed democracy. The protesters have slipped around the soul-deadening, high-gloss marketing of mass-communication culture. Instead, they insist that politics starts with citizens talking to one another and listening—agreeing and disagreeing with mutual respect. The open-door, nonhierarchical membership commits people to engage in what historian Lawrence Goodwyn calls “democratic conversation.”

The Occupy protesters are acting like citizens, believing they have the power to change things. Their ambition reflects a core mystery of American democracy—the fact that humble people can acquire power when they convince themselves they can. Warmhearted and broad-minded, these citizens audaciously claim to speak for the 99 percent—and despite initial ridicule and dismissal of them by much of the press, polls show they have strong public support. The Occupiers have even managed to make uptight reporters write about corporate greed.

Authentic new social movements do not appear very often, and most of them fail. Throughout the nation’s history, rebellions have typically been derailed by their own mistakes and divisions or snuffed out by entrenched power. Even when they endure, it can take years, sometimes generations, to overcome the resistance of the status quo. Think of the abolitionists and the civil rights movement, women’s demand for the vote and equal rights, working people collectively asserting their power in unions.

As with earlier movements, governing elites have grasped the radical nature of this noisy intrusion into their privileged domain, and they have attempted to crush OWS with a series of melodramatic police raids from New York to California. But repression has failed to intimidate the rebellious citizens. Indeed, each attack only seems to strengthen the movement.

But will it last? Skeptics are entitled to their doubts, but for important reasons I am confident this movement will endure. First, because it is very unlikely the establishment will respond substantively to OWS’s grievances—and that will only make the protesters more determined. OWS has brilliantly focused its many complaints on the very sector—the megabankers and financiers—on whom the politicians are dependent. In different ways, Republicans and Democrats are aligned with the greedheads and are thus unwilling to punish their crimes or cut them down to size.

This new movement is probably more threatening to President Obama, because many of the young people and minorities who campaigned and voted for him in 2008 might drift away to Occupy’s direct action. If Obama refuses to get tougher on reining in Wall Street, these former supporters may just skip voting in 2012. Yet this new force can ultimately help Obama if he responds to its message. Led by the young, the movement is aligning with the reviving militancy of labor and other progressive constituencies. The spirit is open-armed and patriotic, not negative and divisive. Obama should dare to lead it rather than dodge or oppose it. The Republicans are hopeless, of course, utterly in thrall to banking industry demands.

In any case, this movement is not about electoral politics—not yet, anyway. It is about saving the country, an objective bigger than politics and politicians. Its vision is nothing less than halting the degradation and fostering the rebirth of the nation’s original democratic promise. It is the nature of authentic movements to seek large and majestic goals that seem impossible to pedestrian politicians—and, at first, to most citizens. Standing up requires both uncommon courage and severe provocation.

Another reason I’m optimistic about the Occupy movement is its distinctiveness from other movements. Its horizontal, leaderless quality confuses outsiders but ensures its autonomy as a free-standing force not beholden to political parties or financial patrons that might restrict its behavior. OWS’s creativity depends on its independence.

And finally, I am optimistic about Occupy because I see similarities with earlier movements that led to significant reforms. Odd as it may seem, Occupy’s situation resembles in some ways the agrarian revolt of the late nineteenth century. I say odd because the Populists were poverty-plagued farmers; but like today’s protesters, they were getting crushed by the banking system and monopoly capitalism. For an inspiring portrait of what ordinary Americans can accomplish in adversity, read Lawrence Goodwyn’s epic history The Populist Moment. The Populists well understood that nobody was on their side, neither the government nor the bankers. As industrial capitalism advanced, the brutal credit system was converting yeoman farmers of the South and Midwest into landless peasants (a bit like the foreclosure crisis impoverishing homeowners in our time). In deep crisis, the Populists had to save themselves. They launched agricultural cooperatives and developed farsighted reform proposals, many of which were ultimately embraced by the New Deal. The Populists lost in their own time, but they planted seeds for the future and changed the nation in the long run.

Like the Populists, the Occupiers are acting in the American spirit of self-reliance, doing whatever they can to counter a destructive system and force change upon it. In the absence of serious financial reform from Congress, for example, the “move your money” campaign uses direct action to take money and power away from the megabanks. But Occupy is also demanding a new kind of government, one not captured by corporate power and rigged against ordinary people. Occupy DC, for example, has proposed a humane plan for deficit reduction. Others urge a constitutional amendment that would disarm the money power’s capture of democracy. OWS can bring about a change in laws, but first it must cleanse our degraded political culture. This is a staggering challenge, of course, but radical reform will originate only from ordinary citizens—not policy experts and their Wall Street supporters, who led the nation into ruin. The movement can inspire the people to become creative citizens again. Are we up to it? Let us find out. Let the democratic conversations begin.

© 2011 The Nation

William Greider is national affairs correspondent for The Nation. He is author of "Secrets of the Temple: How the Federal Reserve Runs the Country" and, most recently, "Come Home, America: The Rise and Fall (and Redeeming Promise) of Our Country."

A Thanksgiving Reflection: Looking Beyond Election Day

by Robert Reich

Friday, November 25, 2011

Most political analysis of America’s awful economy focuses on whether it will doom President Obama’s reelection or cause Congress to turn toward one party or the other. These are important questions, but we should really be looking at the deeper problems with which whoever wins in 2012 will have to deal.

Not to depress you, but our economic troubles are likely to continue for many years — a decade or more. At the current rate of job growth (averaging 90,000 new jobs per month over the last six months), 14 million Americans will remain permanently unemployed. The consensus estimate is that at least 90,000 new jobs are needed just to keep up with the growth of the labor force. Even if we get back to a normal rate of 200,000 new jobs per month, unemployment will stay high for at least ten years. Years of high unemployment will likely result in a vicious cycle, as relatively lower spending by the middle-class further slows job growth.

This, in turn, could make political compromise even more elusive than it is now, as remarkable as that may seem. In past years, politics has been greased by the expectation of better times to come – not only more personal consumption but also upward mobility through good schools, access to college, better jobs, improved infrastructure. It’s been a virtuous cycle: When the economy grows, the wealthy more easily accept a smaller share of the gains because they still came out ahead of where they were before. And everyone more willingly pays taxes to finance public provision because they share in the overall economic gains.

Now the grease is gone. Fully two-thirds of Americans recently polled by the Wall Street Journal say they aren’t confident life for their children’s generation will be better than it’s been for them. The last time our hopes for a better life were dashed so profoundly was during the Great Depression.

But here’s what might be considered the good news. Rather than ushering in an era of political paralysis, the Great Depression of the 1930s changed American politics altogether — realigning the major parties, creating new coalitions, and yielding new solutions. Prolonged economic distress of a decade or more could have the same effect this time around.

What might the new politics look like? The nation is polarizing in three distinct ways, and any or all of could generate new political alignments.

Anti-establishment

A vast gulf separates Tea Party Republicans from the inchoate Wall Street Occupiers. The former disdain government; the latter hate Wall Street and big corporations. The Tea Party is well organized and generously financed; Occupiers are relentlessly disorganized and underfunded. And if the events of the last two weeks are any guide, Occupiers probably won’t be able to literally occupy public areas indefinitely; they’ll have to move from occupying locations to organizing around issues.

But the two overlap in an important way that provides a clue to the first characteristic of the new politics. Both movements are doggedly anti-establishment — distrusting politically powerful and privileged elites and the institutions those elites inhabit.

There’s little difference, after all, between the right’s depiction of a “chablis-drinking, Brie-eating” establishment and the left’s perception of a rich one percent who fly to the Hamptons in private jets.

In political terms, both sides are deeply suspicious of the Federal Reserve and want it to be more transparent and accountable. Both are committed to ending “corporate welfare” — special tax breaks and subsidies for specific industries or companies. And for both, Washington’s original sin was the bailing out of Wall Street.

Mere mention the bailout at any Tea Party meet-in or Occupier teach-in elicits similar jeers. The first expression of Tea Party power was the Utah Tea Party’s rejection of conservative Republican senator Robert Bennett because of his vote for the bailout. At the Republican state convention, which ultimately led to the election of Senator Mike Lee, the crowd repeatedly shouted “TARP! TARP! TARP!” The Occupiers, too, began on Wall Street.

The historian Richard Hofstadter once wrote a famous essay about the recurring strain of, as he put it, a “paranoid style in American politics” — an underlying readiness among average voters to see conspiracies among powerful elites supposedly plotting against them. He noted that the paranoia arises during periods of economic stress.

But the web of interconnections linking Washington and Wall Street over the last decade or so — involving campaign contributions, revolving doors, and secret deals — has been so tight as to suggest that this newer anti-establishment activism is based on at least a kernel of truth.

Isolationist

Economic stresses caused Americans to turn inward during the Great Depression, and we’re seeing the same drift this time around. Republican fulminations against the “cult of multiculturalism” are meeting similar sentiments in traditional Democratic precincts — especially when it comes to undocumented immigrants. Alabama and Arizona have spearheaded especially vicious laws, yet polls show increasing percentages of voters across America objecting to giving the children of illegal immigrants access to state-supported services.

Meanwhile, Americans are turning against global trade. Notwithstanding new trade agreements with South Korea, Panama, and Colombia, only a minority of Americans now believes trade agreements benefit the U.S. economy. A growing percentage also want the U.S. out of the World Trade Organization. China has emerged as a special bogeyman. The Democratic-controlled Senate recently passing a bill to punish China for under-valuing its currency, but China-bashing is becoming bipartisan. Mitt Romney accuses former U.S. leaders of having “been played like a fiddle by the Chinese.”

Neither immigration, nor trade, nor China’s currency manipulation is the cause of America’s high unemployment. All three predated the crash of 2008, before which unemployment was only 5 percent. Yet the current drift toward isolationism is not entirely irrational. As hundreds of millions of workers in emerging economies — especially in Asia — continue to enter the global workforce with steadily-improving skills and higher productivity, more and more Americans are losing ground. Meanwhile, immigration and trade are boons to top executives and professionals who gain access to cheaper labor and larger markets for their own skills and insights.

Generational

A third division likely to widen if the economy remains bad runs along a demographic fault-line. Many aging boomers whose nest eggs have turned the size of humming-bird eggs are understandably anxious about their retirement, while America’s young — whose skins are more likely than those of boomer retirees to be brown or black — face years of joblessness.

The jobless rate among people under 25 is already over 17 percent. For young people of color it’s above 20 percent. For young college grads — who assumed a bachelors’ degree was a ticket to upward mobility — unemployment has reached 10 percent. Yet these percentages are likely to rise if boomers decide they can’t afford to retire, and thereby block the jobs pipeline for younger people seeking employment.

Old and young will also find themselves increasingly at odds over public spending. In many communities retirees already resist property tax hikes to pay for local schools. Expect that resistance to grow as boomers have to live on fixed incomes smaller than they expected, and a new wave of young people swarm into the nation’s educational systems. The federal budget will also be a scene of generational conflict. Medicare and Social Security, the two giant entitlement programs for seniors that cost more than $1 trillion a year and account for about a third of the federal budget, will be traded off against programs that benefit the young: Title I funding for low-income school-age students; Head Start; food stamps; child nutrition; children’s health; and vaccines. It’s likely that Medicaid — Medicare’s poor stepchild, half of whose recipients are children — will also be on the cutting board.

After the enactment of Medicare in 1965, poverty among the elderly declined markedly. But poverty among America’s children continues to rise. Yet children don’t have nearly as effective a lobbying presence in Washington. AARP spent $9.7 million on lobbying during first six months of this year, according to the Center for Responsive Politics. By contrast, the Children’s Defense Fund spent just $48,245 last year. Yet because the future lies with the young and with an increasingly diverse America, politicians and parties looking toward the longer term will have to take heed.

Solutions?

How our political parties and leaders will cope with these three fault lines is far from clear, partly because the lines don’t all move in same direction. Young Americans tend to be more anti-establishment than older Americans, for example, but are also more open to other nations and cultures. By the same token, a generational war over the budget might be avoided if anti-establishment movements succeed in reducing corporate welfare, raising taxes on the rich, and limiting Wall Street’s rapacious hold over economic decision making.

What seems certain, however, is that continued high unemployment coupled with slow or no growth will create a new political landscape. This will pose a special challenge — and opportunity. If our political leaders don’t manage the new dividing lines effectively they could invite a politics of resentment that scapegoats certain groups while avoiding the hard work of setting priorities and making difficult choices.

On the other hand, if political leaders take advantage of the energies and possibilities this new landscape offers, they could usher in an era in which the fruits of growth are more widely shared: between elites and everyone else; between the beneficiaries of globalization and those most burdened by it; and between older Americans and young. This itself could reignite a virtuous cycle — a broad-based prosperity that not only generates more demand for goods and services and therefore more jobs, but also a more inclusive and generous politics.

There is a precedent for the second alternative. The structural reforms begun in the depression decade of the 1930s generated just this kind of virtuous cycle in the three decades after World War II. And in devising and implementing these reforms, the Democratic Party came to represent Americans with little power relative to the financial and business elites that had dominated the country before the great crash of 1929. That political realignment was the most profound and successful of the twentieth century.

Will it happen again? At this point, both parties are doing remarkably little given the gravity of the continuing jobs depression and the widening gap of income and wealth. Taming the budget deficit is the only significant issue anyone in Washington seems willing to raise yet Congress seems incapable of achieving any significant progress on this. And the budget itself is only indirectly related to the deeper questions of how to restart economic growth, how much of that growth should be allocated to public goods such as the environment or education, and how the benefits of that growth are to be shared.

Political elites are worried about thunder on the right and the left, but they show scant understanding of what these growing anti-establishment forces signify. Meanwhile, the nation drifts.

Occupy Wall Street and the Importance of Creative Protest

Published on Monday, November 21, 2011 by The Nation

by Allison Kilkenny

Perhaps the single biggest factor that helped lead to the Occupy movement’s success in capturing the media and public’s attention has been its creativity. Novel protest strategies have served as OWS’s foundation since its first days. The very idea of occupying, and sleeping in, a park twenty-four hours a day was new and exciting.

Up until Occupy, most protests had become exercises in futility. Protesters would show up with their sad, limp carboard signs, march around for a little while—maybe press would show up, but most likely not—and then everyone would go home. Hardly effective stuff.

Even when the protests were massive, say during the lead-up to the Iraq invasion, media had learned to ignore protests as being the hallmark of a bygone era of granola-munching hippies. Whether consciously or unconsciously, the media helped hand protesters loss after loss, perhaps recognizing the fact that protest waged within the perimeters constructed by city officials is completely ineffective.

Demonstrators need a permit to march, and even then must remain on the sidewalk and never disrupt traffic; they need a permit to use a bullhorn, a permit to play music, etc. Protesters, in other words, can protest as long as they never disrupt the normalcy of everyday living, which of course defeats the concept of meaningful protest in the first place.

After a while, all protests began to look the same. Protesters show up, march around, chant X or Y slogan, and if it’s super-exciting, clash with the police and everyone goes to jail. Repeat chorus. It’s no wonder the corporately controlled media were so easily able to write off protest culture as being unimportant or ineffective. The horrible truth was, it had become futile.

That is, of course, until Occupy showed up and refused to play by the city-written rules. No, they wouldn’t be getting permits. No, they wouldn’t be going home at curfew. They would remain in camps as permanent monuments to the injustice and inequality of America’s society. There was no “normal” anymore. There was only what Occupy chose to do, and to not do.

Beyond the creativity of the camps themselves with their libraries, clinics, food tents, media centers and very own newspapers, Occupy chapters are full of young protesters who are extremely savvy to what captures the media’s attention.

Hero Vincent, a young man who is one of the more well-known Occupy protesters and who has been arrested four times since the beginning of the occupation, one day casually remarked, “We need a bat signal. The 99%.”

And that idea came to fruition as thousands of protesters marched across the Brooklyn Bridge Friday. (photo by @OccupyJudaism)

Business Insider reports that a single mother of three named Denise Vega volunteered her apartment in a subsidized housing building across the way to set up the projector. When Occupy tried to pay her for the use of her apartment, she refused the money. “This is for the people,” she said.

From Denise’s windowsill, the projector shone the massive “99%” image across the side of the Verizon building. Not only was the image perfect media bait, it served as a profound statement. Verizon, famous for tax dodging and mistreating union members, has been an Occupy target for a long time. Here was the protesters’ chance to not only defiantly march by an archetype of corporate greed but also physically leave a mark, albeit temporary, on Verizon’s face.

The symbolic moment: the candlelight march, the projector’s alternating messages, including, “We are winning,” every element expressed awesome power. You could see it in the faces of the marchers that they had never experienced a profoundly empowering feeling like this before.

And it wasn’t just happening in New York. It was happening everywhere. The projector’s shutter closed and reopened, presenting a new message, “Occupy Earth.”

The Occupy protesters talk about Tahrir and Egypt’s youth not like they’re some foreign, abstract concept, but rather comrades in a common struggle. They express genuine love and solidarity for people who live 5,000 miles away from them, whom they’ll never meet, but with whom they recognize they have more in common with than Bank of America’s CEO.

Perhaps one of the eeriest and most powerful recent Occupy moments occurred when UC Davis chancellor Linda Katehi left a press conference in which she was responding to the horrible images and video of UC Davis police officer Lt. John Pike nonchalantly pepper-spraying peaceful protesters.

Students must have been overwhelmingly tempted to shout at the chancellor, or chant “shame,” but such scenes have unfolded a thousand times before, and would have run the risk of being drowned out by similar displays in Oakland, New York City and elsewhere.

Katehi, who hadn’t leaved the press conference for three hours because “the crowd outside was perceived to be hostile,” finally exited the building and was not greeted with lobbed insults or slogans.

Rather, she was greeted with deafening, crushing silence.

Katehi cannot conceal the emotion from her face as she walks past the hundreds of stoic students, the chancellor’s heels clicking upon the pavement serving as the moment’s soundtrack.

When a reporter asks her if she still fears her students, she turns and softly says, “No…no…” But the look in her eyes is unmistakable. She has just attended the funeral of her legacy.

Where Occupy has flourished and other movements have perished is in the group’s refusal to be swept under the rug. Part of this resistance is displayed in moments of pure grit where protesters simply don’t give up when confronted with snow, rain, derision or the unyielding brutality of the police state.

But resistance also occurs when activists adopt guerilla tactics, including non-traditional protest. Much like Anonymous, OWS is a new wave of protest, a direct and significant challenge to the elite who are unaccustomed to such confrontation.

And the one percent find such evolved protest—this kind of global awakening—absolutely bone-chillingly terrifying. If the elites can no longer exploit xenophobia, red state–blue state civil war, racism, sexism or homophobia, how will they keep the underclass bickering while they run off with the country’s wealth?

This is why a well-known Washington lobbying firm with links to the financial industry proposed a $850,000 plan to smear the activists, or as they put it, “opposition research” in order to construct “negative narratives.”

This is also why Mayor Bloomberg had the NYPD raid Liberty Park’s encampment in the dead of night, and perhaps offers a clue as to why he chose yesterday to parade around yet another alleged bad guy, whom the NYPD had been tailing for two years, yet chose Sunday night as a good time for the Big Bust.

As Bloomberg’s popularity wanes, and the public cries out about vanishing First Amendment rights and police brutality, what better time to simulate a terrorist attack on television and remind everyone to remain terrified and compliant to the billionaire mayor and his army?

I’ve seen countless speculations about “What’s next?” for Occupy, but such theorizing is made in vain. No one knows what’s next for Occupy because the group isn’t like any protest movement that came before it. Yes, OWS borrows from concepts like Hooverville and the global justice movement, but in other ways it’s completely new, so speculating about what they’re going to do a month from now is pointless.

However, there has been some indications that in the coming cold winter months, the occupations will move indoors to condemned buildings and foreclosed homes. Such a maneuver would again place Occupy at the forefront of creative protest.

Ever since the wave of foreclosures began, there have always been rogue sheriffs who refused to kick people out of their homes, and community organizers who help move homeless people into abandoned houses, but there has never been a serious, organized national movement to reclaim the homes.

If ever there was a protest group equipped to attempt such a feat, it’s Occupy.

© 2011 The Nation

Allison Kilkenny is the co-host of the progressive political podcast Citizen Radio (wearecitizenradio.com) and independent journalist who blogs at allisonkilkenny.com. Her work has appeared in The American Prospect, the L.A. Times, In These Times, Common Dreams, Truthout and the award-winning grassroots NYC newspaper The Indypendent

The Globalization of Protest

Published on Monday, November 7, 2011 by Project Syndicate

by Joseph Stiglitz

NEW YORK – The protest movement that began in Tunisia in January, subsequently spreading to Egypt, and then to Spain, has now become global, with the protests engulfing Wall Street and cities across America. Globalization and modern technology now enables social movements to transcend borders as rapidly as ideas can. And social protest has found fertile ground everywhere: a sense that the “system” has failed, and the conviction that even in a democracy, the electoral process will not set things right – at least not without strong pressure from the street.

In May, I went to the site of the Tunisian protests; in July, I talked to Spain’s indignados; from there, I went to meet the young Egyptian revolutionaries in Cairo’s Tahrir Square; and, a few weeks ago, I talked with Occupy Wall Street protesters in New York. There is a common theme, expressed by the OWS movement in a simple phrase: “We are the 99%.”

That slogan echoes the title of an article that I recently published, entitled “Of the 1%, for the 1%, and by the 1%,” describing the enormous increase in inequality in the United States: 1% of the population controls more than 40% of the wealth and receives more than 20% of the income. And those in this rarefied stratum often are rewarded so richly not because they have contributed more to society – bonuses and bailouts neatly gutted that justification for inequality – but because they are, to put it bluntly, successful (and sometimes corrupt) rent-seekers.

This is not to deny that some of the 1% have contributed a great deal. Indeed, the social benefits of many real innovations (as opposed to the novel financial “products” that ended up unleashing havoc on the world economy) typically far exceed what their innovators receive.

But, around the world, political influence and anti-competitive practices (often sustained through politics) have been central to the increase in economic inequality. And tax systems in which a billionaire like Warren Buffett pays less tax (as a percentage of his income) than his secretary, or in which speculators, who helped to bring down the global economy, are taxed at lower rates than those who work for their income, have reinforced the trend.

Research in recent years has shown how important and ingrained notions of fairness are. Spain’s protesters, and those in other countries, are right to be indignant: here is a system in which the bankers got bailed out, while those whom they preyed upon have been left to fend for themselves. Worse, the bankers are now back at their desks, earning bonuses that amount to more than most workers hope to earn in a lifetime, while young people who studied hard and played by the rules see no prospects for fulfilling employment.

The rise in inequality is the product of a vicious spiral: the rich rent-seekers use their wealth to shape legislation in order to protect and increase their wealth – and their influence. The US Supreme Court, in its notorious Citizens United decision, has given corporations free rein to use their money to influence the direction of politics. But, while the wealthy can use their money to amplify their views, back on the street, police wouldn’t allow me to address the OWS protesters through a megaphone.

The contrast between overregulated democracy and unregulated bankers did not go unnoticed. But the protesters are ingenious: they echoed what I said through the crowd, so that all could hear. And, to avoid interrupting the “dialogue” by clapping, they used forceful hand signals to express their agreement.

They are right that something is wrong about our “system.” Around the world, we have underutilized resources – people who want to work, machines that lie idle, buildings that are empty – and huge unmet needs: fighting poverty, promoting development, and retrofitting the economy for global warming, to name just a few. In America, after more than seven million home foreclosures in recent years, we have empty homes and homeless people.

The protesters have been criticized for not having an agenda. But this misses the point of protest movements. They are an expression of frustration with the electoral process. They are an alarm.

The anti-globalization protests in Seattle in 1999, at what was supposed to be the inauguration of a new round of trade talks, called attention to the failures of globalization and the international institutions and agreements that govern it. When the press looked into the protesters’ allegations, they found that there was more than a grain of truth in them. The trade negotiations that followed were different – at least in principle, they were supposed to be a development round, to make up for some of the deficiencies highlighted by protesters – and the International Monetary Fund subsequently undertook significant reforms.

Protesters believe that capitalism as an economic system has failed the 99%. (Gallo/Getty)

So, too, in the US, the civil-rights protesters of the 1960’s called attention to pervasive institutionalized racism in American society. That legacy has not yet been overcome, but the election of President Barack Obama shows how far those protests moved America.

On one level, today’s protesters are asking for little: a chance to use their skills, the right to decent work at decent pay, a fairer economy and society. Their hope is evolutionary, not revolutionary. But, on another level, they are asking for a great deal: a democracy where people, not dollars, matter, and a market economy that delivers on what it is supposed to do.

The two are related: as we have seen, unfettered markets lead to economic and political crises. Markets work the way they should only when they operate within a framework of appropriate government regulations; and that framework can be erected only in a democracy that reflects the general interest – not the interests of the 1%. The best government that money can buy is no longer good enough.

© 2011 Project Syndicate

Joseph E. Stiglitz is University Professor at Columbia University. Among many books, he is the author of Globalization and Its Discontents. He received the Nobel Prize in Economics in 2001 for research on the economics of information. He is the co-author, with Linda Bilmes, of The Three Trillion Dollar War: The True Costs of the Iraq Conflict.  His most recent book is Free Fall: America, Free Markets, and the Sinking of the World Economy.

The War Against the Poor and Occupy Wall Street

Published on Monday, November 7, 2011 by TomDispatch.com

The Politics of Financial Morality

by Frances Fox Piven

We’ve been at war for decades now -- not just in Afghanistan or Iraq, but right here at home.  Domestically, it’s been a war against the poor, but if you hadn’t noticed, that’s not surprising. You wouldn’t often have found the casualty figures from this particular conflict in your local newspaper or on the nightly TV news.  Devastating as it’s been, the war against the poor has gone largely unnoticed -- until now.

By making Wall Street its symbolic target, and branding itself as a movement of the 99%, OWS has redirected public attention to the issue of extreme inequality, which it has recast as, essentially, a moral problem." (Creative Commons | Wikimedia | Brian Sims)

The Occupy Wall Street movement has already made the con- centration of wealth at the top of this society a central issue in American politics.  Now, it promises to do something similar when it comes to the realities of poverty in this country.

By making Wall Street its symbolic target, and branding itself as a movement of the 99%, OWS has redirected public attention to the issue of extreme inequality, which it has recast as, essentially, a moral problem.  Only a short time ago, the “morals” issue in politics meant the propriety of sexual preferences, reproductive behavior, or the personal behavior of presidents.  Economic policy, including tax cuts for the rich, subsidies and government protection for insurance and pharmaceutical companies, and financial deregulation, was shrouded in clouds of propaganda or simply considered too complex for ordinary Americans to grasp.

Now, in what seems like no time at all, the fog has lifted and the topic on the table everywhere seems to be the morality of contemporary financial capitalism.  The protestors have accomplished this mainly through the symbolic power of their actions: by naming Wall Street, the heartland of financial capitalism, as the enemy, and by welcoming the homeless and the down-and-out to their occupation sites.  And of course, the slogan “We are the 99%” reiterated the message that almost all of us are suffering from the reckless profiteering of a tiny handful.  (In fact, they aren’t far off: the increase in income of the top 1% over the past three decades about equals the losses of the bottom 80%.)

The movement’s moral call is reminiscent of earlier historical moments when popular uprisings invoked ideas of a “moral economy” to justify demands for bread or grain or wages -- for, that is, a measure of economic justice.  Historians usually attribute popular ideas of a moral economy to custom and tradition, as when the British historian E.P. Thompson traced the idea of a “just price” for basic foodstuffs invoked by eighteenth century English food rioters to then already centuries-old Elizabethan statutes.  But the rebellious poor have never simply been traditionalists.  In the face of violations of what they considered to be their customary rights, they did not wait for the magistrates to act, but often took it upon themselves to enforce what they considered to be the foundation of a just moral economy.

Being Poor By the Numbers

A moral economy for our own time would certainly take on the unbridled accumulation of wealth at the expense of the majority (and the planet).  It would also single out for special condemnation the creation of an ever-larger stratum of people we call “the poor” who struggle to survive in the shadow of the overconsumption and waste of that top 1%.

Some facts: early in 2011, the U.S. Census Bureau reported that 14.3% of the population, or 47 million people -- one in six Americans -- were living below the official poverty threshold, currently set at $22,400 annually for a family of four. Some 19 million people are living in what is called extreme poverty, which means that their household income falls in the bottom half of those considered to be below the poverty line.  More than a third of those extremely poor people are children.  Indeed, more than half of all children younger than six living with a single mother are poor.  Extrapolating from this data, Emily Monea and Isabel Sawhill of the Brookings Institution estimate that further sharp increases in both poverty and child poverty rates lie in our American future. 

Some experts dispute these numbers on the grounds that they neither take account of the assistance that the poor still receive, mainly through the food stamp program, nor of regional variations in the cost of living.  In fact, bad as they are, the official numbers don’t tell the full story.  The situation of the poor is actually considerably worse. The official poverty line is calculated as simply three times the minimal food budget first introduced in 1959, and then adjusted for inflation in food costs.  In other words, the American poverty threshold takes no account of the cost of housing or fuel or transportation or health-care costs, all of which are rising more rapidly than the cost of basic foods. So the poverty measure grossly understates the real cost of subsistence.

Moreover, in 2006, interest payments on consumer debt had already put more than four million people, not officially in poverty, below the line, making them “debt poor.”  Similarly, if childcare costs, estimated at $5,750 a year in 2006, were deducted from gross income, many more people would be counted as officially poor.

Nor are these catastrophic levels of poverty merely a temporary response to rising unemployment rates or reductions in take-home pay resulting from the great economic meltdown of 2008.  The numbers tell the story and it’s clear enough: poverty was on the rise before the Great Recession hit.  Between 2001 and 2007, poverty actually increased for the first time on record during an economic recovery.  It rose from 11.7% in 2001 to 12.5% in 2007.  Poverty rates for single mothers in 2007 were 49% higher in the U.S. than in 15 other high-income countries.  Similarly, black employment rates and income were declining before the recession struck.

In part, all of this was the inevitable fallout from a decades-long business mobilization to reduce labor costs by weakening unions and changing public policies that protected workers and those same unions.  As a result, National Labor Board decisions became far less favorable to both workers and unions, workplace regulations were not enforced, and the minimum wage lagged far behind inflation.

Inevitably, the overall impact of the campaign to reduce labor’s share of national earnings meant that a growing number of Americans couldn’t earn even a poverty-level livelihood -- and even that’s not the whole of it.  The poor and the programs that assisted them were the objects of a full-bore campaign directed specifically at them.

Campaigning Against the Poor

This attack began even while the Black Freedom Movement of the 1960s was in full throttle.  It was already evident in the failed 1964 presidential campaign of Republican Barry Goldwater, as well as in the recurrent campaigns of sometime Democrat and segregationist governor of Alabama George Wallace.  Richard Nixon’s presidential bid in 1968 picked up on the theme. 

As many commentators have pointed out, his triumphant campaign strategy tapped into the rising racial animosities not only of white southerners, but of a white working class in the north that suddenly found itself locked in competition with newly urbanized African-Americans for jobs, public services, and housing, as well as in campaigns for school desegregation.  The racial theme quickly melded into political propaganda targeting the poor and contemporary poor-relief programs.  Indeed, in American politics “poverty,” along with “welfare,” “unwed mothers,” and “crime,” became code words for blacks.

In the process, resurgent Republicans tried to defeat Democrats at the polls by associating them with blacks and with liberal policies meant to alleviate poverty.  One result was the infamous “war on drugs” that largely ignored major traffickers in favor of the lowest level offenders in inner-city communities.  Along with that came a massive program of prison building and incarceration, as well as the wholesale “reform” of the main means-tested cash assistance program, Aid to Families of Dependent Children.  This politically driven attack on the poor proved just the opening drama in a decades-long campaign launched by business and the organized right against workers.

This was not only war against the poor, but the very “class war” that Republicans now use to brand just about any action they don’t like.  In fact, class war was the overarching goal of the campaign, something that would soon enough become apparent in policies that led to a massive redistribution of the burden of taxation, the cannibalization of government services through privatization, wage cuts and enfeebled unions, and the deregulation of business, banks, and financial institutions.

The poor -- and blacks -- were an endlessly useful rhetorical foil, a propagandistic distraction used to win elections and make bigger gains. Still, the rhetoric was important.  A host of new think tanks, political organizations, and lobbyists in Washington D.C. promoted the message that the country’s problems were caused by the poor whose shiftlessness, criminal inclinations, and sexual promiscuity were being indulged by a too-generous welfare system.

Genuine suffering followed quickly enough, along with big cuts in the means-tested programs that helped the poor.  The staging of the cuts was itself enwreathed in clouds of propaganda, but cumulatively they frayed the safety net that protected both the poor and workers, especially low-wage ones, which meant women and minorities. When Ronald Reagan entered the Oval Office in 1980, the path had been smoothed for huge cuts in programs for poor people, and by the 1990s the Democrats, looking for electoral strategies that would raise campaign dollars from big business and put them back in power, took up the banner. It was Bill Clinton, after all, who campaigned on the slogan “end welfare as we know it.”

A Movement for a Moral Economy

The war against the poor at the federal level was soon matched in state capitols where organizations like the American Federation for Children, the American Legislative Exchange Council, the Institute for Liberty, and the State Policy Network went to work.  Their lobbying agenda was ambitious, including the large-scale privatization of public services, business tax cuts, the rollback of environmental regulations and consumer protections, crippling public sector unions, and measures (like requiring photo identification) that would restrict the access students and the poor had to the ballot.  But the poor were their main public target and again, there were real life consequences -- welfare cutbacks, particularly in the Aid to Families with Dependent Children program, and a law-and-order campaign that resulted in the massive incarceration of black men.

The Great Recession sharply worsened these trends.  The Economic Policy Institute reports that the typical working-age household, which had already seen a decline of roughly $2,300 in income between 2000 and 2006, lost another $2,700 between 2007 and 2009.  And when “recovery” arrived, however uncertainly, it was mainly in low-wage industries, which accounted for nearly half of what growth there was.  Manufacturing continued to contract, while the labor market lost 6.1% of payroll employment.  New investment, when it occurred at all, was more likely to be in machinery than in new workers, so unemployment levels remain alarmingly high.  In other words, the recession accelerated ongoing market trends toward lower-wage and ever more insecure employment.

The recession also prompted further cutbacks in welfare programs.  Because cash assistance has become so hard to get, thanks to so-called welfare reform, and fallback state-assistance programs have been crippled, the federal food stamp program has come to carry much of the weight in providing assistance to the poor.  Renamed the “Supplemental Nutritional Assistance Program,” it was boosted by funds provided in the Recovery Act, and benefits temporarily rose, as did participation.  But Congress has repeatedly attempted to slash the program’s funds, and even to divert some of them into farm subsidies, while efforts, not yet successful, have been made to deny food stamps to any family that includes a worker on strike.

The organized right justifies its draconian policies toward the poor with moral arguments.  Right-wing think tanks and blogs, for instance, ponder the damaging effect on disabled poor children of becoming “dependent” on government assistance, or they scrutinize government nutritional assistance for poor pregnant women and children in an effort to explain away positive outcomes for infants.

The willful ignorance and cruelty of it all can leave you gasping -- and gasp was all we did for decades.  This is why we so desperately needed a movement for a new kind of moral economy.  Occupy Wall Street, which has already changed the national conversation, may well be its beginning.

© 2011 Frances Fox Piven

Frances Fox Piven is professor of political science and sociology at the Graduate Center of the City University of New York, where she has taught since 1982. Her latest book, just published, is Who’s Afraid of Frances Fox Piven? The Essential Writings of the Professor Glenn Beck Loves to Hate (The New Press). She is the author and co-author of numerous books, including The War at Home: The Domestic Costs of Bush's Militarism (2004) and Challenging Authority: How Ordinary People Change America (2006), and has received career and lifetime achievement awards fromt he American Sociological Association and the American Political Science Association. Frances has been featured on Democracy Now!, and regular contributor to The Nation

Inchoate Demands of Occupy Wall Street: Can They Be Accomplished Without a Revolution?

by John Lawrence

Much has been said about Occupy Wall Street's lack of particular demands. However, their inchoate demands are numerous and plentiful, and what they amount to when totaled up is a complete repudiation of the organization of business and government and the way they are now constituted which isn't the way the Founding Fathers envisioned them at all. The way business is being conducted in the US amounts to a transmogrification of American values under the guise of an evolution of those values. America has morphed into a pseudo republic based on lies and hypocrisy, on militarism in the name of rationality, on the worship of money and the legitmation of any means to obtain it. Without getting specific the Occupy movement represents a repudiation of these abhorrent values which represent the corruption of everything Americans used to hold dear in the service of unmitigated greed and a glorification of unlimited wealth regardless of the plight of the vast majority of the people.

What the Occupy movement really wants in a vague indefinite way among other things is

(1) Getting money out of politics. That encompasses two ideas: that political campaigns should be publicly funded instead of funded by Wall Street and other wealthy interests and that lobbyists should be gotten out of Washington. Right now 40,000 lobbyists swarm Capitol Hill writing legislation in favor of the corporations that pay them an average of $300,000. starting salary to obtain legislation that stacks the cards in the corporations' favor. Is it any wonder tax policy favors the rich and exploits the poor? Does anyone truly think that getting money out of politics can be accomplished without a revolution? No way. The wealthy and the powerful will never back off. They have morphed American democracy into a plutocracy, and Democrats, who by and large have been bought off by the same wealthy interests, are not a true opposition party. They talk out of one side of their mouth while fund raising out of the other. True democracy cannot exist again until politics becomes something other than the tool of monied interests.

(2) The rich must pay their fair share of taxes. Tax policy as a result of frenetic lobbying has favored the rich while exploiting the poor. That's the whole purpose of lobbying: to seek tax advantages for the rich at the expense of the poor. That's the whole raison d'etre for lobbyists getting paid their obscene salaries. Reagan and Greenspan were experts at raising taxes on the poor while lowering them on the rich and at the same time obfuscating what they were doing and convincing the middle class that taxes were being fairly raised or lowered on everyone. Not true. Implicit in the tax code is favorable treatment for the upper 1% and an albatross around the neck of the poor and middle class - the 99%. Wealthy Wall Streeters pay only a 15% capital gains tax and benefit from "carried interest" which gives them the same tax rate no matter how many billions they make. And Republicans fight like hell to preserve these tax advantages for the rich, every last penny of them. They will never agree to tax capital gains as ordinary income, a millionaires's tax or a financial transactions tax. Does anyone think that any of these things can be accomplished without a revolution?

(3) The filibuster rule. The most antidemocratic tool of the Republican dominated Senate. A return to democracy would require the abolition of the filibuster rule. Does anyone think this can be accomplished without a revolution? The filibuster rule means that the majority does not rule and never will again as long as the present regime holds sway.

(4) Health care as a right. Medicare for all. Medicare's overhead is 3%. Private health insurance's overhead is 30%. Health insurance corporation CEOs made an average of $11 million last year while the highest salary paid to anyone in Medicare administration was less than $200,000. That's the reason why health care is becoming so expensive with paltry outcomes. Private health insurance  corporations are under Wall Street's thumb. Wall Street demands higher and higher profits and increasing returns for investors. The result comes about from reducing the Medical Loss Ratio (MLR) which is the percentage paid out for actual medical care compared to the percentage paid out to investors and CEOs. I'ts a classic case of profit over people and again Wall Street is the culprit. Is there a theme developing here? Wall Street has its finger in every pie of the economy demanding that profits be placed over people. The Occupy Wall Street movement has pointed its finger at the exact culprit in every facet of American life that needs changing and Wall Street is at the heart of it. Does anyone think the US will join the rest of the world in providing a universal, cost contained health care system without a revolution? There is no way that "reform" will accomplish this. Obamacare was a valiant effort, but, ultimately, it is no complete solution, and its provisions are subject to being rolled back at the first opportunity by Republicans who want to eliminate not only Obamacare but also social security, Medicare, Medicaid and any other social program benefitting the poor and middle class.

(5) The student loan crisis. The heart of the student loan crisis is the privatization of the student loan industry. Instead of assisting or subsidizing students to get a college education, privatization has led to the exploiting of students in order to maximize profits. Again Wall Street is at the heart of the problem demanding higher and higher returns for investors. Instead of assisting students, the private student loan industry exploits them burdening them for life with debt which cannot be discharged in bankruptcy. Republicans and Wall Street worked together to change the law in 2006 which now requires students to pay for life to discharge their debt even going so far as to allow garnishing of their social security benefits. Democratic legislation under Obama has rolled back some of these draconian measures but has done nothing to reverse the bankruptcy law of 2006. Again Wall Street has been catered to and profits have been placed above people. Does anyone think students will ever be able to dischartge student loan debt in bankruptcy without a revolution?

(6) The foreclosure crisis. Wall Street was allowed to get completely off the hook with regard to mortgage loan modification. The performance of Obama's Home Affordable Modification Program (HAMP) has been underwhelming at best. Housing experts say the $1,000 payments mortgage servicers get for successful modifications, and the lack of consequences for disobeying program guidelines, don't provide enough incentive to modify many mortgages. The well intentioned Obama administration made mortgage modification voluntary on the part of the banks. Guess what? Wall Street has decided it would not "volunteer" to reduce its profits by giving underwater home owners a break. Again the middle class gets screwed in order to maximize Wall Street profits. What was Obama thinking? Does anyone think Wall Street will write down mortgages giving themselves a voluntary haircut without a revolution? Does anyone think Republicans will have a change of heart and suddenly decide to do the right thing with respect to the middle class against the wishes of Wall Street as long as they control at least one branch of Congress or even if Democrats control both branches of Congress and the Presidency as long as the filibuster rule is in effect? Does anyone think mortgages will ever be modified favoring the middle class without a revolution?

(7) Jobs. Does anyone think the government will ever create jobs directly by reinstating an FDR style Works Progress Administration (WPA) or Civilian Conservation Corps (CCC) or even an infrastructure bill without a revolution? Will it ever be the policy of the US to be the employer of last resort without a revolution? It'll never happen. Instead, homelessness on an ever increasing scale will become a "normal" part of American life because this is perfectly consistent with capitalism. The impoverishment of millions will become normalized. As Herman Cain says, "If you don't have a job, blame yourself." THe US will join the rest of the underdeveloped world in a world class regression to a society composed of the very rich and an extremely impoverished class of everyone else.

(8) Corporations are people; money is speech. The Citizens United Supreme Court decision verified that corporations are people and money is speech. In particular corporations can spend as much money as they want on political advertising. They have an unlimited right to spend as much as they want to get the candidates elected who will do their bidding. They can propagandize to their heart's content, and the easily led lemmings will buy it and follow them off a cliff. There is no other consideration in electoral politics than money. Democracy is irrelevant; plutocracy shall rule the day. Does anyone think that anything short of a revolution will change this state of affairs?

(9) The war in Afghanistan should be ended, and the $2 billion per week that the US is spending there should be spent on improving the lives of American citizens. The military-industrial complex budget should be cut in half. The US spends more on its military than all the rest of the world combined. It has over 1000 military bases located in just about every country in the world. This money is being wasted because defense contractors have some of the strongest and most prolific lobbyists on Capitol Hill. According to Prophets of War, Lockheed Martin and the Making of the Military-Industrial Complex by William D Hartung: Lockheed Martin "spent $15 million on lobbying and campaign contributions in 2009 alone. Add to that its 140,000 employees and its claim to have a prescence in forty-six states, and the scale of its potential influence starts to become clear. And while its current political activities are perfectly legal, the company has also been known to break the rules: It ranks number one on the database on contractor misconduct maintained by the Washington-based watchdog group Project on Government Oversight (POGO); according to POGO, Lockheed Martin has '50 instances of criminal, civil or administrative misconduct since 1995.'" So the military-industrial complex of which Lockheed Martin is the leading exponent uses its poltical influence in Washington to make sure it keeps its profits high as Wall Street demands. Again Wall Street is implicated as it demands the highest possible profits for its investors in the military-industrial complex.

Instead of overspending on the military-industrial complex, the US should adopt the model that was successfully used recently in Libya. Military goals were accomplished by joining with NATO partners to spread the cost, and not one American life was lost. Does anyone think the powerful defense contractor lobby will back down, and American taxpayer money will be spent primarily on benefitting the American people instead of trying to control and dominate the world without a revolution?

The social contract which implied that, if you studied hard, obtained a college degree and tended to your knitting, you would be rewarded with a good job has completely broken down. Corporations have no responsibility to provide anyone with a job. Instead their only allegiance at the behest of Wall Street is to their bottom line. Wall Street demands that they increase profits. They do so not by providing American jobs but by outsourcing jobs to wherever in the world labor is cheapest. Then they turn around and demand that their taxes be lowered and regulations be gutted, and say disingenuously that that is the only way they will hire more people. But they continue to outsource jobs even though their taxes are the lowest of any historical period since the Great Depression and they are sitting on $2 trillion in cash that they prefer not to use employing people. Instead they buy back their own stock and gamble on Wall Street.

So what is a college education worth these days? Not much. It does not represent the promise of a happy future but instead a burden of debt which may last a life time. The education industry goes on an advertising binge to convince potential students that the only way they will have a promising future is to matriculate and borrow money. Hopefully, students are waking up to this sham. A college diploma used to be a ticket of admission to employment with a corporation. Certainly most college diplomas do not prepare one to become self-employed, only  employed by others. If a person seeks to be self-employed, they do not need a college diploma in most cases. They don't need a ticket of admission to the corporate world in order to start their own business. Steve Jobs had no college diploma. Bill Gates has no college diploma. Larry Ellison has no college diploma. These are billionaires in the world of high tech. They do, however, want their employees to have college diplomas, and it matters little to them whether these employees come from the US, India, China, Korea or someplace else. In fact they prefer overseas college graduates because they will work cheaper. Most contractors and tradesmen do not need college diplomas, and the work they do for the most part is localized and can't be exported. A word to the wise ...

Each and every public space and institution is under attack by Republicans. Public schools, public parks, public libraries are being defunded as are public teachers, park rangers, librarians, police and firemen. Republican goals are to diminish public spaces and the jobs supporting them so that they can "drown them all in the bathtub" as Grover Norquist wants. Public spaces are being impoverished at the same time private wealth is being enhanced by every means available. Public America is being turned into poverty while private America gains. And when public spaces and public jobs are diminished, the poor and middle class suffer because the rich only use private spaces - private resorts, private universities, private security companies, private libraries, private schools. A country can be rich in private wealth but poor and in debt with respect to public wealth. Such is the fate of the US under Republican rule.

The Occupy Wall Street movement is joining with movements all over the world in waking up to the fact that Wall Street is at the heart of the world's problems. They are wise not to particularize their demands because then they would be offered some sham, watered down solution which would do nothing to curtail Wall Street's power and its dominance over not only America's but Europe's political systems. Neither the US nor the euro zone has the guts to stand up to Wall Street and its extensions in Europe because this might lead to another recession. Instead, they put bandaids on the present system in the hopes that they will be able to normalize things even though "normal" means the impoverishment and the indenturization of the majority of the people.

The One Percent Scrambles to Maintain Profits – and Order

Published on Saturday, November 5, 2011 by CommonDreams.org

by Brian Tierney

“The next few months will be crucial for avoiding a dramatic downturn in employment and a further significant aggravation of social unrest.”

That’s is the first sentence in a report released this week by the International Labor Organization studying the effects of the economic crisis and its impact on global labor markets. On the one hand, it sounds like common sense: as working and poor people see their livelihoods wracked by joblessness and social cuts while the rich enjoy lavish wealth, low taxes and increased profits, popular anger begins to boil over.

photo: Sam Wolff

But sometimes it takes an agency of the United Nations to spell out logic that is more elusive for the ruling one percent – that class of CEOs and policymakers which persists on cutting costs and expanding profits while sitting on mountains of capital.

As a share of GDP, corporate profits in the U.S. are at their highest levels since 1950. Last week the Congressional Budget Office reported that between 1979 and 2007 the income for the top 1 percent rose 275 percent while income for the bottom 20 percent rose only 18 percent. And that data, which predates the record unemployment, home foreclosures and rising poverty brought on by the Great Recession, dramatically understates where economic inequality stands today. At the same time, a report this week revealed that 30 of some of the largest corporations in the country paid no income taxes between 2008 and 2010.

The extreme class disparities in the U.S. are rooted in the outright theft of the poor by the rich, an exploitative relationship written into the DNA of capitalism. But the situation has left many to wonder if the U.S. is on the path to becoming a “third-world” nation.

Under the dictates of international financial institutions, decades of debt and austerity imposed on poor countries in the Global South produced widespread social unrest in the form of civil wars and other conflicts throughout Latin American, Africa and Asia. Today, policies that were so economically unjust that they needed to be forcibly implemented by autocratic regimes are being introduced in the North.

The financial crisis of 2008 has led to a merciless reign of austerity that is being forced on workers and the poor in Europe and North America. Decades of stagnant wages and falling living standards have been compounded by the costs of a crisis that the one percent dumped onto the 99 percent, who are now fighting back like never before.

Lit from the dried tinder of class anger piled up in the world’s financial capital, the Occupy Wall Street movement has spread like a prairie fire, engulfing hundreds of cities and towns across the U.S. and beyond. In Manhattan, Boston, Chicago, Oakland, Atlanta and elsewhere, authorities have only fanned the flames in their attempts to crack down on the movement.

But weeks of evictions, mass arrests and police brutality meted out against protesters came to a head in Oakland last week where plumes of tear gas, stun grenades and other projectiles produced chaos and left one Iraq War veteran, Scott Olsen, in critical condition. The ensuing outrage in turn sparked calls for a general strike, organized on short notice and supported by local unions throughout the Bay Area. On Wednesday thousands marched on the Port of Oakland, effectively shutting down the fifth busiest port in the country. A banner that hung outside City Hall read “Occupy Everything. Death to Capitalism.”

Scenes like these seem less remarkable nowadays in cities like Athens, where general strikes and riots against harsh austerity have shaken the Greek government close to the point of total collapse. A debt crisis in Greece that can also be traced back to Wall Street has plunged the eurozone into a financial maelstrom. The attendant onslaught of painful austerity measures in Europe has led to a surge of class struggle – or what the ILO more academically refers to as “social unrest.”

Youth unemployment has been one of the major factors behind class anger and its expression in the streets. In Spain, a stunning 48 percent of young people are jobless. This summer Spain became a focal point of struggle with the movement of the “Indignados” who occupied public squares in Madrid and other cities.

In turbulent Greece, where youth unemployment officially stands at 43 percent, general strikes, marches and riots have been an ongoing reality in a country where punishing austerity is being pushed by the European Central Bank in order to rescue the Greek economy from bankruptcy. Greece’s sovereign debt crisis has for weeks left Europe teetering on the precipice of a full-blown financial meltdown.

The latest bailout deal, which includes more cuts and promises to exacerbate unemployment, is being pushed hard by Germany, France and the U.S. as President Obama and European leaders met this week for the G20 summit. Meanwhile, the turmoil in Greece has Prime Minister Papandreou’s government hanging on by a thread.   

Youth unemployment and discrimination of marginalized groups were also the fuel behind huge riots that rocked London and other parts of the U.K. this summer.

In the U.S., unemployment and low wages is compounded by soaring student debt, which averaged $25,250 for recent graduates in 2010. Young people in the U.S. have been moved to fight back in various ways over the past year, joining the labor movement’s fight against union-busting legislation in Wisconsin last winter, organizing flash mob actions targeting tax-dodging corporations, and now occupying parks and squares all over the country.

But workers and the poor of all ages have been drawn into the Occupy struggle. The new movement against corporate greed and economic inequality has been strengthened by the involvement of organized labor, which has successfully thwarted police evictions of Occupy encampments in New York and San Francisco as unions called on rank-and-file members to defend the occupations. This fact alone is eloquent testimony for why the Occupy movement needs labor at its side.

Likewise, the Occupy movement has reinvigorated the labor movement. Not only has the movement’s rhetoric about the 99 percent entered the lexicon of labor leaders, but Occupy activists have bolstered labor struggles as well, including the fight among locked out art handlers in New York and thousands of Verizon workers still fighting for a fair contract.

There are fears among some Occupy activists about the danger of being co-opted by labor and its dead-end electoral allegiance to the Democratic Party. But so far, labor leaders appear to recognize that unions need the Occupy movement as much as the Occupy movement needs labor. That alliance would be shattered if labor officials were to push an electoral agenda within the movement because most occupiers have come to reject – or at least become extremely suspicious of – both of the ruling political parties in this country.

Now, with the general strike in Oakland this week, workplace action has been added to the arsenal of the 99 percent in this new struggle. And, as the Occupy movement plans for colder weather, there are serious discussions happening about possibly taking over vacant buildings and foreclosed homes.   

This week, as Bank of America backed off from plans to charge a hugely unpopular $5 debit card fee, there were signs that the ruling one percent is beginning to understand some of the reasoning behind the ILO’s observations about social unrest.

There is a profound sentiment beginning to pulse through the veins of working-class consciousness. It’s a sense that not only have we paid enough for a crisis produced by the rich and their spokespersons in Washington, but it’s time for us to take back what has been stolen from us.

After decades of unbridled class warfare against the 99 percent, soaring profits and relative calm in the streets, workers and the poor are saying something to the one percent: you can’t have it all.

Brian Tierney is a freelance labor journalist in Washington, DC. Read more of his work at Subterranean Dispatches, where this article first appeared.

more Brian Tierney

Bill Gates (the .001%) Joins the 99% for Robin Hood Tax

Published on Thursday, November 3, 2011 by Institute for Policy Studies Blog

One of the world's richest and many of the poorest agree on something, but the Obama administration is holding out.

by Sarah Anderson

The world's second-richest man and a group of American nurses on the frontlines of the Occupy Wall Street protests came to the G20 summit in Cannes, France this week to advocate for the same thing.Bill Gates backs the financial transactions tax. (Photo by Tristan Nitot)

Bill Gates came because French President Nicolas Sarkozy asked him to give G20 leaders recommendations on how to raise funds to meet the needs of the world's poorest. Among Gates' proposals: a small tax on trades of stocks, derivatives, and other financial instruments, also known as a financial transactions tax (FTT), Wall Street speculation tax, or the Robin Hood tax.

According to an advance copy of Gates's report, "FTTs already exist in many countries, where they generate significant revenue, so they are clearly technically feasible. According to the IMF, 15 G20 countries have some form of securities transaction tax. In the seven countries where the IMF estimates revenue, these taxes raise an estimated $15 billion per year."

"It is very plausible that certain kinds of FTTs could work," Gates told the Guardian. "I am lending some credibility to that. This money could be well spent and make a difference."

Gates has a net worth of $59 billion. So forget the 1 percent, he'd be in what, the top 0.001 percent? Meanwhile, representatives of the 99 percent were outside the summit security zone, plugging the same idea.

National Nurses United, the largest union representing U.S. nurses, came to France from the Occupy Wall Street protests across the United States where they have been providing first aid for the encampments. In Cannes, they dressed in their scrubs and joined nurses from Australia, France, Ireland, and Korea. This global group then administered an FTT saline drip to an ailing world economy — represented by a man painted in full body art as the Earth.

"The economic decline is literally making our patients sick," said one of the U.S. nurses. "We see more and more children with conditions related to poor nutrition and stress." The solution, according to the nurses, is a Wall Street tax that could generate the revenues needed to address human needs.

Bill Nighy, an actor famous for his roles in "Love, Actually" and other British films, jumped right into the world economy's hospital bed and posed for photos. "People around the world are dying of illnesses that should have been eliminated hundreds of years ago," Nighy said, noting that a new Wall Street tax could help raise the money required to stop those scourges.

One of his contributions to the campaign for such a tax in the UK was a video that went viral, in which he plays a banker trying to argue against the idea. Ultimately, his character can't find a good reason why not to raise huge amounts of money for the things people need through a tiny tax on financial transactions.

 

 Back inside the summit venue, there's a frenzy of last-minute lobbying going on to try to line up a group of G20 governments to launch a “coalition of the willing on FTT.” The Obama administration isn't expected to be on the list.

But RoseAnn DeMoro, National Nurses United's executive director, said, “Nurses don’t give up on people and they won’t give up on this.” The union also spearheaded a rally in Washington, DC today, with more than a thousand nurses and their allies targeting opponents of the Wall Street tax in the Treasury Department and Congress.

© 2011 Institute for Policy Studies

Sarah Anderson directs the Global Economy Project of the Institute for Policy Studies, a progressive multi-issue think tank, in Washington DC. She’s also the co-author of the IPS report, America’s Bailout Barons: Taxpayers, High Finance, and the CEO Pay Bubble.

Wall Street Is Still Playing Us For Suckers

By Richard Cohen, Published: October 31, 2011 by the Washington Post

As a mere youth, I bought a used car in New York to drive to California to be with the woman of my dreams. Inexplicably, she decided to rush back to New York, so I promptly took the car back to the dealer. He made a shockingly low offer. The car had been in an accident, he explained. The chassis was bent. I was flabbergasted. I had just bought the car from him. If the chassis was bent, it was bent when I bought it. The salesman offered me a take-it-or-leave-it shrug. He probably now works on Wall Street.

That the morality of the used car lot has been adopted by Wall Street is now abundantly clear. Citigroup recently settled a civil complaint in which it was accused of selling mortgage-related investments that it knew were dogs. It was so certain that the investments were the financial equivalent of my used car that it bet against them — heads I win, tails you lose — and even selected the investments themselves, choosing from a cupboard of depleted and exhausted financial instruments. An investment in the Brooklyn Bridge would have been safer.

These investments are known as collateralized debt obligations (CDOs), and they consisted of the sort of mortgage securities that nearly sunk the U.S. financial system. According to federal regulators, they were sold with the full knowledge that they were careening toward worthlessness and that, by deduction, their buyers were patsies. The bank made substantial profits on them. But when the Securities and Exchange Commission decided to act, it got Citigroup to pony up a mere $285 million fine that, to presumed chuckles, will doubtlessly be taken out of petty cash. The bank last quarter reported a profit of $3.8 billion.

Mirth must have turned to guffaws when Citigroup read on. It did not even have to admit guilt — “without admitting or denying” is the language the SEC used — and no single executive was held culpable. The CDOs, apparently, were contrived by no one and sold by no one. There’s a Nobel Prize in something (maybe alchemy) for anyone who can explain how that happened.

The Citigroup settlement is being reviewed by a perplexed U.S. District Court Judge Jed S. Rakoff. Among other things, he wants to know why he should authorize a settlement “in which the SEC alleges a serious securities fraud but the defendant neither admits nor denies wrongdoing.” This is a marvelous question that goes to the heart of the matter. The settlement is itself a CDO, a legal version of a black hole in which next to nothing is disclosed. Why no guilt? Why no guilty people? Why such a non-punishing punishment? The SEC will have to tell it to the judge.

I do not want to be excessively harsh on dear Citigroup. It was not the only one selling smoke. Goldman Sachs and JPMorgan did something similar. In the words of Jesse Eisinger of the online journalistic group ProPublica, “This was the Wall Street business model.” And it was a model permitted and encouraged from the top, by people who became filthy rich from filthy practices and now take umbrage when President Obama calls out their industry for approbation. They should first spend a year in community service and then, if they still feel slighted, denounce Obama.

As for Obama’s government, it has been too gentle with these miscreants. Why not a single major banker has been cuffed and frog-marched to some Financial District Guantanamo is unclear. Why their firms have gotten off with modest fines and non-confession confessions is not clear, either. That, in itself, is a crime.

Somebody has to break this culture. In this sense, Wall Street is no different than the New York Police Department, where it apparently has been customary to fix traffic tickets for friends, family and — almost certainly — the odd person with some cash. When 16 of the alleged ticket-fixers were arraigned last week, hundreds of off-duty cops came to cheer them, denounce the DA and manhandle reporters. Their union took a firm position in defending this behavior. An appalled city awaits firm action by the mayor and police commissioner.

An appalled nation awaits a similar response to what went on in the financial sector. What we would like to see is some version of a public hanging, the appropriate reaction to the breathtaking fleecing of investors. In the end, those investors got their money back. That’s more than we can say about our lost faith in justice.

cohenr@washpost.com