tag:blogger.com,1999:blog-40720023044595091382024-02-20T16:42:23.706-08:00Evil EconomicsAnonymoushttp://www.blogger.com/profile/13540811206265564742noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-4072002304459509138.post-86850716825858152002012-10-08T10:07:00.001-07:002015-08-29T10:22:13.400-07:00US home foreclosures top one million mark<div style="text-align: center;">
<img alt="Chart" border="0" src="http://www.wsws.org/images/2009dec/d23-hous-480" height="235" width="400" /> </div>
Anonymoushttp://www.blogger.com/profile/13540811206265564742noreply@blogger.comtag:blogger.com,1999:blog-4072002304459509138.post-87826531636360383252012-10-08T10:05:00.001-07:002012-10-08T10:05:11.963-07:00Wall Street’s Economic Rampage<div style="text-align: justify;">
Over the past year, Wall Street’s excess has helped push the unemployment rate to epic levels and created millions of foreclosures. Yet the rules of the financial road remain unchanged. As 2009 draws to a close, it’s astonishing that so little progress towards financial reform has been made.
President Obama, Congress and federal regulators have not been tough enough on the nation’s financial elite. As Monika Bauerlein and Clara Jeffery emphasize for Mother Jones, the government has committed about $14 trillion in bailout funds to save the banking system without demanding much of anything in return. Goldman Sachs and other big banks are now planning to pay giant bonuses that come straight from taxpayer giveaways rather than invest that money in socially constructive banking.
“Bankers aren’t being rewarded for pulling the economy out of the doldrums,” Bauerlein and Jeffery write. “Nope, they’re simply skimming from the trillions we’ve shoveled at them.”
The major banks are even spending our bailout money to lobby against reform. When President Obama called a meeting for leaders of the nation’s largest banks to scold them for their lobbying, the heads of Morgan Stanley, Goldman Sachs and Citigroup didn’t even bother to show up, as Matthew Rothschild describes in a podcast for The Progressive.
It’s easy to see why the bank execs are so indifferent, Rothschild argues, even to the president. Now that almost all of these banks have repaid the loans they received under the Troubled Asset Relief Program (TARP), Obama has no negotiating leverage and the bankers know it. Even though it represents just a tiny fraction of the $14 trillion bailout, TARP was the only program that attached any strings to that money. Prior to those TARP repayments, Obama could have demanded that banks do more lending to help the economy, work harder to keep troubled borrowers in their homes—or face executive compensation restrictions or other penalties.
And many of the same regulators who helped bring about today’s economic disaster are still in power. As Sen. Bernie Sanders (I-VT) explains for Brave New Films (video below), Federal Reserve Chairman Ben Bernanke blew just about every major policy decision he faced in the years leading up to the crisis. Bernanke, who was recently named person of the year by Time magazine, failed to rein in reckless mortgage speculation, predatory lending or excessive compensation packages. Nevertheless, President Obama has appointed him to another term.
</div>
<center>
<iframe allowfullscreen="allowfullscreen" frameborder="0" height="315" src="http://www.youtube.com/embed/O3tTlb0s6Bs" width="420"></iframe><div style="text-align: justify;">
<center>
</center>
</div>
</center>
<div style="text-align: justify;">
<center>
<center>
“This recession was precipitated by the greed, recklessness and illegal
behavior on Wall Street,” Sanders says. “One of the key responsibilities
of the Fed is to maintain the safety and soundness of our financial
institutions … The Fed was asleep at the wheel, Bernanke did not do the
job.”<br /><br />Sanders notes that even Bernanke’s financial clean-up
operations have been deeply flawed. Bernanke has helped make today’s
too-big-to-fail banks even bigger. If we want to stop the lobbying and
policy deference that politicians grant to Wall Street, we have to break
up the biggest banks into smaller firms that do not endanger the
economy if they fail.<br /><br />Bernanke is not the only holdover from the
Bush administration that wields significant economic power under Obama.
As I note in a piece for The Nation, John Dugan, the top bank regulator
appointed by President George W. Bush, remains in office today, despite
failing to ensure the financial health of our largest banks and actively
working to undermine consumer protection.<br /><br />Campaign contributions
from the bank lobby will not be enough to counter the voter outrage
that President Obama and members of Congress are facing, nor should
they. If our leaders want a serious shot at re-election, they need to
recognize the need for significant change on Wall Street. That means
breaking up the big banks and setting economic policy that helps all of
our citizens, not just financiers.</center>
</center>
</div>
Anonymoushttp://www.blogger.com/profile/13540811206265564742noreply@blogger.comtag:blogger.com,1999:blog-4072002304459509138.post-41189918371240193292012-10-08T09:58:00.000-07:002015-08-29T10:21:48.560-07:00Bernanke Tightens the Noose<div style="text-align: justify;">
Ben Bernanke has been a bigger disaster than Hurricane Katrina. But the
senate is about to re-up him for another four-year term. What are they
thinking? Bernanke helped Greenspan inflate the biggest speculative
bubble of all time, and still maintains that he never saw it growing.
Right. How can retail housing leap from $12 trillion to $21 trillion in 7
years (1999 to 2006) without popping up on the Fed's radar?<br />
<br />
Bernanke
was also a staunch supporter of the low interest rate madness which led
to the crash. Greenspan never believed that it was the Fed's job to
deal with credit bubbles. "The free market will fix itself", he thought.
He was the nation's chief regulator, but adamantly opposed to the idea
of government regulation. It makes no sense at all. Here' a quote from
Greenspan in 2002: “I do have an ideology. My judgment is that free,
competitive markets are by far the unrivaled way to organize economies.
We have tried regulation, none meaningfully worked.” Bernanke is no
different than Greenspan; they're two peas in the same pod. Everyone
could see what the Fed-duo was up to<br />
<br />
Now Bernanke is expected to
carry on where his former boss left off, using all the tools at his
disposal to offset the atrophy that's endemic to mature capitalist
economies. "Stagnation", that the real enemy, which is why Bernanke
supports this new galaxy of oddball debt-instruments and
bizarre-sounding derivatives; because it creates a world where surplus
capital can generate windfall profits despite chronic overcapacity. It's
financial nirvana for the parasite class; the relentless transfer of
wealth from workers to speculators via paper assets. Marx figured it
out. And, now, so has Bernanke.<br />
<br />
Bernanke is just following
Greenspan's basic blueprint. It's nothing new. Unregulated derivatives
trading is just one of the many scams he's thrown his weight behind. The
list goes on and on; one swindle after another. Just look what happened
when Lehman Bros blew up. Just weeks earlier, Bernanke and Co. had
worked out a deal with JP Morgan to buy Bear Stearns with the proviso
that the government would guarantee $40 billion in Bear's toxic assets.
Fair enough. The whole transaction went by without a hitch. Then Lehman
starts teetering, and Bernanke and Treasury Secretary Henry Paulson
decide to do a complete policy-flip and let Lehman default. Their
reversal stunned the markets and triggered a frenzied run on the money
markets that nearly collapsed the global financial system.<br />
<br />
Why?It
was because Bernanke knew that the big banks were buried under a
mountain of bad assets and needed emergency help from Congress. The
faux-Lehman crisis was cooked up to extort the $700 billion from
taxpayers via the TARP fund. Bernanke and Paulson pulled off the biggest
heist in history and there's never even been an investigation.<br />
<br />
Bernanke
was in the wheelhouse when the subprime bubble blew and carved $13
trillion from aggregate household wealth. Consumers are now so deeply
underwater that personal credit is shrinking for the first time in 50
years while unemployment is hovering at 10 per cent. If Bernanke isn't
responsible, than who is?<br />
<br />
Take a look at Bernanke's so-called
lending facilities. They are all designed with one object in mind, to
support financial markets at the expense of workers. The media praises
the Troubled asset-backed security lending facility (TALF) as a way to
restart the wholesale credit system (securitzation). But is it? Under
the TALF, the government provides up to 92 per cent of the funding for
investors willing to buy assets backed by auto, credit card, or student
loans. In other words, the Fed is putting the taxpayer on the hook for
another trillion dollars (without congressional authorization or
oversight) to produce more of the same high-risk assets which investors
still refuse to purchase two years after the two Bear Stearns hedge
funds defaulted in July 2007. Fortunately, the TALF turned out to be
another Fed boondoggle that fizzled on the launchpad. Taxpayers were
lucky to dodge a bullet.<br />
<br />
Bernanke's latest stealth-ripoff is
called quantitative easing (QE) which is being touted as a way to
increase consumer lending by building up banks reserves. In fact, it
doesn't do that at all and Bernanke knows it. As an "expert" on the
Great Depression, he knows that stuffing the banks with reserves was
tried in the 1930s, but it did nothing. Nor will it today. Here's how
economist James Galbraith explains it:<br />
<br />
"The New Deal rebuilt
America physically, providing a foundation from which the mobilization
of World War II could be launched. But it also saved the country
politically and morally, providing jobs, hope, and confidence that in
the end democracy was worth preserving....<br />
<br />
“What did not recover,
under Roosevelt, was the private banking system. Borrowing and
lending—mortgages and home construction—contributed far less to the
growth of output in the 1930s and ’40s than they had in the 1920s or
would come to do after the war. If they had savings at all, people
stayed in Treasuries, and despite huge deficits interest rates for
federal debt remained near zero. The liquidity trap wasn’t overcome
until the war ended..... the relaunching of private finance took twenty
years, and the war besides.<br />
<br />
“A brief reflection on this history
and present circumstances drives a plain conclusion: the full
restoration of private credit will take a long time. It will follow, not
precede, the restoration of sound private household finances. There is
no way the project of resurrecting the economy by stuffing the banks
with cash will work. Effective policy can only work the other way
around." ("No Return to Normal:Why the economic crisis, and its
solution, are bigger than you think" James K. Galbraith, Washington
Monthly)<br />
<br />
Bernanke QE is a joke. He's just creating a diversion so
he can shovel more money into insolvent banks, pump-up the stock
markets, and recycle Treasuries. Otherwise why would Obama's Chief
Economic Advisor, Lawrence Summers say this:<br />
<br />
"In the current
circumstances the case for fiscal stimulus... is stronger than ever
before in my professional lifetime. Unemployment is almost certain to
increase -- probably to the highest levels in a generation. Monetary
policy has little scope to stimulate the economy given how low interest
rates already are and the problems in the financial system. Global
experience with economic downturns caused by financial distress suggests
that while they are of uncertain depth, they are almost always of long
duration." ("A Bailout Is Just a Start", Lawrence Summers, Washington
Post)<br />
<br />
QE is monetary policy writ large and--by Summers’ own
admission--it won't work. It won't reduce unemployment or spark a credit
expansion. That's why total consumer spending is falling, retail sales
are flat, and wages are beginning to tank. Everywhere businesses are
trimming hours and cutting salaries. Bernanke's $1 trillion in excess
bank reserves has had no material effect on lending, credit expansion or
jobs. It's been a dead loss. Here's Damian Paletta of the Wall Street
Journal:<br />
<br />
"U.S. lenders saw loans fall by the largest amount since
the government began tracking such data, suggesting that nervousness
among banks continues to hamper economic recovery.<br />
<br />
Total loan
balances fell by $210.4 billion, or 3 per cent, in the third quarter,
the biggest decline since data collection began in 1984, according to a
report released Tuesday by the Federal Deposit Insurance Corp. The FDIC
also said its fund to backstop deposits fell into negative territory for
just the second time in its history, pushed down by a wave of bank
failures.<br />
<br />
“The decline in total loans showed how banks remain
reluctant to lend, despite the hundreds of billions of dollars the
government has spent to prop up ailing banks and jump-start lending. The
issue has taken on greater urgency with the U.S. unemployment rate
hitting 10.2 per cent in October, even as the economy appears to be
stabilizing.<br />
<br />
“The total of commercial and industrial loans, a
category that includes business loans, fell to $1.28 trillion at the end
of September, from $1.36 trillion at the end of June. The outstanding
total of construction loans, credit cards and mortgages also fell.
("Lending Declines as Bank Jitters Persist" Damian Paletta, Wall Street
Journal)<br />
<br />
Bernanke, Summers, Geithner and Obama have all
misrepresented quantitative easing (QE) so they can improve the
liquidity position of the banks without the public knowing what's going
on. The fact is, the banks are not "capital constrained" by lack of
reserves. Therefore, extra reserves won't lead to increased lending.
Billy Blog clarifies how the banking system really works and how that
relates to QE: "Does quantitative easing work? The mainstream belief is
that quantitative easing will stimulate the economy sufficiently to put a
brake on the downward spiral of lost production and the increasing
unemployment. It is based on the erroneous belief that the banks need
reserves before they can lend and that quantitative easing provides
those reserves. That is a major misrepresentation of the way the banking
system actually operates. But the mainstream position asserts (wrongly)
that banks only lend if they have prior reserves. The illusion is that a
bank is an institution that accepts deposits to build up reserves and
then on-lends them at a margin to make money. The conceptualization
suggests that if it doesn’t have adequate reserves then it cannot lend.
So the presupposition is that by adding to bank reserves, quantitative
easing will help lending. But this is a completely incorrect depiction
of how banks operate. Bank lending is not “reserve constrained”. Banks
lend to any credit worthy customer they can find and then worry about
their reserve positions afterwards.”<br />
<br />
So, if bank lending is not
constrained by lack of reserves, then what does QE actually do? Not
much, apparently. All quantitative easing does is exchange one type of
financial asset (long-term bonds) with another (reserve balances). "The
net financial assets in the private sector are in fact unchanged
although the portfolio composition of those assets is altered (maturity
substitution) which changes yields and returns." (Bill Mitchell) The net
result of Bernanke's meddling is just this: Quantitative easing and the
lending facilities have kept the price of financial assets artificially
high, which has minimized financial sector deleveraging. (Financial
sector debt is currently $16.4 trillion, nearly the same as it was a
year ago. $16.3 trillion) In contrast, households have lost $13 trillion
which has thrust the middle class into an ongoing depression. The
soaring unemployment and viscous credit contraction are the result of
the Fed's policies, not economics.<br />
<br />
Tightening the Noose<br />
<br />
The
Fed is engaged in various covert-strategies to recapitalize the banking
system. At the same time, Bernanke, Summers, Geithner, and Obama have
stated repeatedly, that they're committed to slashing the long-term
deficits. This means that they plan to reduce liquidity and push the
economy back into recession so they can launch a surprise attack on
Medicaid, Medicare, and Social Security.<br />
<br />
Last Thursday, Bernanke
announced that he will begin to tighten the noose as early as March 31
2010, when the Fed ends its $1.65 trillion purchases of agency debt,
mortgage-backed securities, and US Treasuries. That's why stock market
volatility has picked up since the Fed released its December 16
statement. Here's a clip:<br />
<br />
"In light of ongoing improvements in
the functioning of financial markets, the Committee and the Board of
Governors anticipate that most of the Federal Reserve’s special
liquidity facilities will expire on February 1, 2010,... These
facilities include the Asset-Backed Commercial Paper Money Market Mutual
Fund Liquidity Facility, the Commercial Paper Funding Facility, the
Primary Dealer Credit Facility, and the Term Securities Lending
Facility. The Federal Reserve will also be working with its central bank
counterparties to close its temporary liquidity swap arrangements by
February 1. The Federal Reserve expects that amounts provided under the
Term Auction Facility will continue to be scaled back in early 2010. The
anticipated expiration dates for the Term Asset-Backed Securities Loan
Facility remain set at June 30, 2010, for loans backed by new-issue
commercial mortgage-backed securities and March 31, 2010, for loans
backed by all other types of collateral."<br />
<br />
By April 1, 2010 the
mortgage monetization program will be over; long-term interest rates
will rise and housing prices will fall. When the Fed withdraws its
support, liquidity will drain from the system, stocks will drop, and the
economy will slide back into recession. Obama's second blast of fiscal
stimulus--which is a mere $200 billion dollars --won't make a lick of
difference.<br />
<br />
The Obama administration and the Fed are on the same
page. There will be no lifeline for the unemployed or the states. Those
days are over. Now it's on to "starve the beast" and crush the middle
class. Maestro Greenspan summed up the Fed's approach in a recent
appearance on Meet the Press when he opined, "I think the Fed has done
an extraordinary job and it's done a huge amount (to bolster
employment). There's just so much monetary policy that the central bank
can do. And I think they've gone to their limits, at this particular
stage."<br />
<br />
Indeed. Brace yourself for a hard landing.</div>
Anonymoushttp://www.blogger.com/profile/13540811206265564742noreply@blogger.comtag:blogger.com,1999:blog-4072002304459509138.post-80318246197055723152012-10-08T09:55:00.001-07:002012-10-08T09:55:49.804-07:00Health care profiteers: A billion-dollar lobby<div style="text-align: justify;">
A study by the Center for Responsive Politics (CRP), Northwestern
University and the Chicago Tribune, published in the newspaper Sunday,
found that health care lobbyists have spent more than $396 million this
year to influence senators and congressmen engaged in passing the health
care restructuring legislation, and $862 million in 2008-2009 combined.
<br /><br />With the frenzy of lobbying in the last quarter of 2009, the two-year total will go well beyond $1 billion. <br /><br />The
drug industry alone has spent $199 million on lobbying in the first
nine months of the year, which CRP said was the largest such amount ever
spent by any industry on any issue. The drug lobby negotiated a deal
with the White House in the spring to limit to $80 billion over ten
years the amount that the drug companies would have to accept in
discounts and rebates as their "contribution" to paying for the health
care overhaul. Efforts by some Senate and House Democrats to impose
greater costs on the industry, as much as $200 billion, have been beaten
back with the support of the Obama administration. <br /><br />The 338
health care corporations and associations hired at least 166 former
staffers and 13 former members of the nine congressional leadership
offices and five committees with a role in shaping health care
legislation. Another 112 former staffers worked as lobbyists on health
care legislation for non-health care companies. <br /><br />The value of
such lobbying was demonstrated in the case of one former staffer for the
late Massachusetts Senator Ted Kennedy, a leading liberal and chairman
of one of the key Senate committees. Donal Nexon went to work for the
trade association representing small and mid-size manufacturers of
medical devices, and was able to reduce a proposed $40 billion tax over
ten years to one only half as large - a $20 billion saving that dwarfs
the lobbying expense. <br /><br />Top staffers and former congressmen can
count on tripling or quadrupling their incomes when they leave Capitol
Hill for positions with major lobbying groups. <br /><br />According the
figures assembled by the CRP researchers, former Democratic staffers led
the way in cashing in on the health care legislation, including 14
former aides to House Majority Leader Steny Hoyer and 13 former aides to
Senator Max Baucus, chairman of the Finance Committee, whose draft
legislation is largely intact in the bill currently going through the
Senate. <br /><br />The biggest single employer of insider lobbyists is the
Pharmaceutical Research and Manufacturers of America, or PhRMA, which
employs at least 26 former congressional aides and members. The head of
PhRMA is Billy Tauzin, a Louisiana Democratic congressman who became a
Republican, shepherded the Bush administration's Medicare drug benefit
through the House - a huge boondoggle for the drug companies - then
retired to become the top drug industry lobbyist at an annual salary of
$2.5 million. <br /><br />These CRP figures actually understate
substantially the total cash being expended to ensure that the overhaul
is tailored to various corporate interests. Insurance company lobbying
is not included, as the reports filed by these companies do not
distinguish between lobbying on health insurance and lobbying on other
insurance issues. Nor does the report consider spending by general
business lobbies like the US Chamber of Commerce, the Business
Roundtable, or individual corporations like Walmart. <br /><br />The
insurance industry is, next to the drug companies, the biggest spender
on health care lobbying. Its bribes - thinly concealed as campaign
contributions and "educational" expenses - have paid big dividends. The
Senate bill will require at least 30 million Americans to buy health
insurance, thereby becoming forced customers of the big insurers, while
there will be no public option and no expansion of Medicare to compete
with them. <br /><br />The favorite senator of the health insurance lobby,
Independent Democrat Joseph Lieberman of Connecticut, was not
coincidentally the key player in ditching the public option, as he
threatened to join the Republican filibuster and kill the overall
legislation if the public option was not withdrawn. <br /><br />Other
reports give a glimpse of the vast flow of money from private
corporations to Capitol Hill in the course of the health care "debate."
GlaxoSmithKline spent $2.3 million in the first half of 2009, Novartis
$1.8 million, MetLife $1.7 million, Allstate $2.4 million. The American
Medical Association spent $8.2 million in the first half of the year. <br /><br />There
are a total of 3,300 registered health care lobbyists, approximately
six for every senator and congressman. Throughout the year, this force
was increased at the rate of three new lobbyists each day. <br /><br />The
beneficiaries of the health care slush fund include both the leading
opponents of the current Senate bill - Republican John McCain leads with
$546,000 and Senate Minority Leader Mitch McConnell follows with
$425,000 - and the leading supporters, including Senator Baucus, with
$413,000 in contributions. Baucus collected $3 million from health and
insurance companies from 2003 to 2008, and his top contributors include
Schering-Plough, New York Life, Amgen, Blue Cross and Blue Shield and
the CEO of Merck. <br /><br />The Washington Post described one summer
meeting between Baucus and a group of health care lobbyists who included
two of his former chiefs of staff: David Castagnetti, whose clients
include PhRMA and America's Health Insurance Plans, and Jeffrey A.
Forbes, who represents PhRMA, Amgen, Genentech, Merck and others. A
third Baucus chief of staff, Jim Messina, is now deputy White House
chief of staff.</div>
Anonymoushttp://www.blogger.com/profile/13540811206265564742noreply@blogger.comtag:blogger.com,1999:blog-4072002304459509138.post-72075123688365359622012-10-08T09:54:00.000-07:002012-10-08T09:54:23.503-07:00Hedge fund manager makes $2.5 billion betting on US bailout of Wall Street<div style="text-align: justify;">
David Tepper, manager of the hedge fund Appaloosa Management, is set to
pocket more than $2.5 billion this year after successfully gambling that
the Obama administration would provide unlimited public funds to bail
out the major banks. According to an article in Monday's Wall Street
Journal, Tepper's firm, which specializes in buying up "distressed"
shares and assets, has already racked up $7 billion in profits this
year. <br /><br />In the early stages of the bank bailout, the Journal
reports, investors were fearful that the government might ultimately
nationalize major banks, which would have wiped out shareholders. These
fears, combined with the virtual collapse of credit markets and huge
losses reported by some of the biggest Wall Street firms, led to a sharp
fall in bank stocks. <br /><br />But, according to the Journal, when the
Obama administration announced its Financial Stability Plan in early
February of this year, including a virtually open-ended commitment to
inject capital into the banks, Tepper interpreted the plan as a signal
that the government would do whatever was necessary to cover the bad
debts of the financial elite. He took for good coin repeated statements
by top administration officials that they had no intention of taking
control of teetering Wall Street firms. <br /><br />Thus, when most
investors were dumping bank stocks, driving their prices to bargain
basement levels, Tepper directed his traders to begin buying bank stocks
and debt. By the end of the following month, the flood of cash, cheap
loans and other government subsidies to the banks began to lift bank
stock prices, fuelling a run-up on the markets that has seen the Dow
rise by more than 50 percent since its lows in early March. <br /><br />Tepper
bet that the Obama administration would respond to the financial crash
with an unprecedented plundering of the national treasury, and he bet
right. <br /><br />On February 20, for example, Bank of America stock hit a
low of $2.53. Citigroup had fallen to 97 cents by March 5. Tepper
responded by buying huge blocks of shares and cashing in when Citigroup
shares tripled and Bank of America stock rose five-fold from its low
point. <br /><br />Tepper, the Journal reports, has generally kept his hedge
fund profitable - it has averaged 30 percent yearly returns - by
betting that markets would recover after major crises. During the Asian
financial crisis of 1997, he bought Russian debt and Korean stocks, both
of which staged major rebounds. He made a killing when commodity
purchases he made in 2007 took off in value amid a general commodity
price boom in 2008. "His biggest scores over the years have come from
buying large chunks of out-of-favor investments," the Journal notes. <br /><br />However,
his fund lost more than $1 billion in big bets in 2008, and its
earnings fell 25 percent, worse than the industry's average decline of
19 percent. His fortunes turned in 2009 when he bet everything on the
government's total subordination to Wall Street. <br /><br />In many ways,
Tepper's success is emblematic of the social layers that have benefitted
from the Obama administration's financial policies, even as millions of
workers have lost their jobs, seen their wages and benefits cut, lost
their homes and been thrown into poverty. <br /><br />This is how the Journal describes Mr. Tepper: <br /><br />"The
husky, bespectacled trader laughs easily, but employees say he can
quickly turn on them when he's angry. Mr. Tepper keeps a brass replica
of a pair of testicles in a prominent spot on his desk, a present from
former employees. He rubs the gift for luck during the trading day to
get a laugh out of colleagues." <br /><br />The newspaper reports that
Tepper has turned his attention to a new investment target, purchasing
about $2 billion in "beaten-down" commercial mortgage-backed securities.
He is betting that the government will make sure that the billions in
such toxic assets on the books of the major banks will rebound, allowing
the banks to eventually sell them off at top dollar. <br /><br />To put
Tepper's windfall in perspective, his $2.5 billion in personal earnings
this year is larger than the $2.4 billion allocated by the federal
government for homeless assistance programs. It is equivalent to the
medium household income of 50,000 Americans. His hedge fund's $7 billion
profit is greater than the gross domestic product of 57 of 190
countries listed in the 2008 CIA World Fact Book. <br /><br />Tepper's
payout comes alongside an expected $140 billion in compensation this
year for employees of the biggest Wall Street firms, according to
estimates by the Wall Street Journal. The top 50 hedge fund managers
took in a combined sum of $29 billion last year. <br /><br />Hedgefund.net,
writing on Tepper's windfall, commented that "David Tepper pulled a John
Paulson," referring to the hedge fund manager who took home $3.7 in
2008 after betting on the collapse of the subprime mortgage market. <br /><br />Paulson
made billions betting on the collapse of the market, Tepper bet on its
bailout. This social layer made money on the way down, and even more on
the way up. That these people should receive such immense sums for
activity that produces no real value is an indictment of capitalism.
Tepper's bonanza demonstrates further that the entire economic policy of
the Obama administration has been crafted to preserve the wealth of
this parasitical elite.</div>
Anonymoushttp://www.blogger.com/profile/13540811206265564742noreply@blogger.comtag:blogger.com,1999:blog-4072002304459509138.post-39665904368905420062012-10-08T09:52:00.005-07:002012-10-08T09:52:44.711-07:00AN ECONOMIC WONDERLAND: DERIVATIVE CASTLES BUILT ON SAND<div style="text-align: justify;">
"Virtually every aspect of conventional economic theory is
intellectually unsound; virtually every economic policy recommendation
is just as likely to do harm as it is to lead to the general good. Far
from holding the intellectual high ground, economics rests on
foundations of quicksand. If economics were truly a science, then the
dominant school of thought in economics would long ago have disappeared
from view (Steve Keen, 2001, p. 4)."<br /><br />In the full flood of the
current credit/financial crisis there appears to be no shortage of
people and organisations to blame short-sellers in the market,
profligate home-owners in the USA who signed up for mortgages that they
could not afford, Fannie Mae, Freddy Mac, the executives of investment
banks and their million-dollar bonuses, hedge funds, the Fed, etc.
Whilst the desire to find a culpable victim is perfectly understandable,
it is also obvious that there is no "silver bullet" causal mechanism
for this rapidly developing systemic failure. This article looks at the
political and cultural determinants of the current crisis, using three
intertwined themes:<br /><br />(1) the development of financial derivatives themselves;<br /><br />(2) the subversion of risk analysis by globalising capitalism; and<br /><br />(3)
the co-opting of the concept and analysis of fair value by the big
accountancy firms and banks, through which financial derivatives were
valued.<br /><br />It will be the suggestion of this article that the
development of an enculturated, fundamentalist, market-orientated
economic discourse since the 1970s has acted as a stalking-horse for the
development of new, powerful, unrestricted and unregulated markets in
the financial services sector, a stalking-horse which is by its very
character anti-democratic. Thus far nothing particularly new except
that, with the development of financial derivatives and CDOs, such is
the power of this supremacist ideology that a massive global market has
developed in products which are essentially imaginary.<br /><br />Whether
we're talking about democracy underpinned by law or constitutional
framework, the liberal democracies of Western Europe or the
constitutional democracy of the USA, democracies work on the basis of
the refreshing and realistic precept of the inevitability of human
frailty all power corrupts and democracy is the politics-made-flesh of
that acceptance. There can be no end-state to democracy, it is and will
always be a process undergoing continual fracture, revision and change.
To paraphrase the quote about art often attributed to Mussorgsky, any
given form of democracy is not an end in itself, but a means of
addressing humanity; it is a process whose development is characterised
by endless subversion, thwarted and side-stepped by constant attempts
from within and without to turn its frail authority into forms of power
to be used against it.<br /><br />Democracy by its very nature both hosts
and is vulnerable to a limitless range of counter-narratives, ranging
from tiny political movements to global meta-narratives which, in being
given freedom to thrive, may at any time metastasise into the illness
that kills the host. Ideological fundamentalists of whatever kind
(Christian, Islamic, nationalist/populist or left/populist, for
instance) whose core beliefs may allow them to use democratic mechanisms
to achieve power within a given democratic type, may then use those
same mechanisms to restrict or even close down democratic practices as
being inimitable with contradictory core beliefs.<br /><br />Not all core
belief systems have arisen under democracies, of course, and many of
them predate the earliest democratic ideas by thousands of years, but
Western liberal/constitutional democracies are presently threatened by
one of the youngest. The Trojan horse of theoretical market
fundamentalism that has been made flesh since the 1970s has carried
within it a market fantasist belief, the presumption over and above the
theoretical dominance of market forces that a market exists simply
because we will it to be so and that its workings will be
self-correcting and tend towards healthy equilibria, under no matter
what circumstances.<br /><br />The theoretical dictates of market
fundamentalism have long been more dangerous than any other core
discourse for different reasons. Amongst the most important of these are
because it has become a core belief directly contradicting the central
precept of democracy discussed above it represents the idea that the
unheeding self-interest of billions (in reality, of course, no more than
a few thousand elite worldwide) acting together will lead to a
universally prosperous and orderly society. In the late-twentieth and
early twenty-first century mutation of the Classical economic school of
the late nineteenth century, self-interest and conflict of interest have
been inverted into virtues and internalised as good for the health of
the body politic human fallibility and the tendency towards corruption
become in this reading essential motors for a prosperous society.<br /><br />It
might seem a long step from a discussion of democracy and markets
towards the present credit crunch (plus housing market collapse, plus
banking collapse) and yet the connecting thread is firm and direct.
Market fundamentalism contains a further anti-democratic core belief,
which is its claim to scientific status and from that an objective,
"truth-giving' capacity; to quote the then-Chief Economist to the World
Bank, Larry Summers, at an IMF summit in Bangkok in 1991: "The laws of
economics, it's often forgotten, are like the laws of engineering.
There's only one set of laws, and they work everywhere". There is no
alternative under this reading of the laws of economics, and market
fantasy has become one symptom of this delusional illness that the body
democratic has become host to.<br /><br />The current theological mutation
of market fundamentalism is not alone in this, however; there are (for
instance) significant numbers of Muslims, Jews and Christians who
believe that their core religious beliefs are quite literally true and
the only valid explanation for the world in which we live; these core
essentialists from each religion would advance the argument that since
they are the unique possessors of an incontrovertible truth, ideally all
countries and all people should live under the rules dictated by that
core discourse. Since the turf fights between Islamic and Christian
belief systems from the seventh century onwards, few core belief systems
have come as close to being accepted on a global basis as market
fundamentalism has after the collapse of the Socialist Bloc in 1989.
Market fundamentalism comes close to being the first universal modern
religion; a core belief system that is still just a belief system, but
which has overcome the traditional limitations of religion by asserting
the coloration of scientific inevitability from which springs the market
fantasist mindset.<br /><br />Necrotising marketitis<br /><br />"Monetary
forces, particularly if unleashed in a destabilizing direction, can be
extremely powerful. The best thing that central bankers can do for the
world is to avoid such crises by providing the economy with, in Milton
Friedman's words, a "stable monetary background" for example as
reflected in low and stable inflation [. . .] I would like to say to
Milton and Anna: Regarding the Great Depression. You're right, we did
it. We're very sorry. But thanks to you, we won't do it again (Bernanke,
2002).<br /><br />Whilst the Socialist Bloc existed, the governments of
liberal Western democracies needed to be politically restrained in their
approach to market freedom; the threat of an alternative belief-system
existed (however imperfect) and the governments of the Western Bloc had
to exert caution over permissible amounts of volatility and instability
(the central concern was of course the mass unemployment such volatility
might incur and the resulting social/civil unrest that might accompany
it, a more direct challenge to the system).<br /><br />Financial derivatives
began a new era with the deregulation of foreign currency exchanges in
the 1970s and the introduction of standardised options in 1973. By the
1980s, at the same time that it no longer seemed probable that Western
liberal democracy would succumb to the global advance of Soviet
Socialism, increasing confidence in the supremacy of globalising
capitalism overthrew any perceived need for regulatory caution,
especially during monetarist regimes of Margaret Thatcher in the UK and
Ronald Reagan in the USA. The terminal decline of the Socialist Bloc
came accompanied in globalising capitalism by an increasing boldness in
the development of market instruments. Two of the more important amongst
these, the packaging of US mortgage bonds from the 1980s onwards to
create collateralised debt obligations and the selling of default
protection as credit default swaps from the 1990s (after the fall of the
USSR) became two key actors in the current crisis.<br /><br />Accompanied
by massive and sustained pressure towards the deregulation of all
markets and stock exchanges in particular, what had been originally
created as relatively crude instruments for hedging loan exposure
developed rapidly into far more sophisticated instruments to feed the
voracious demand for capital fuelling the non-inflationary continuous
expansion (NICE) era of the 1990s. By the turn of the century credit
derivatives had multiplied so rapidly in type and extent and capital
capture that they constituted a market of themselves, and the fall of
Enron and what that had to say about the risk associated with credit
derivatives was effectively dismissed by markets, institutions,
academics and professionals alike. As an editorial piece in Risk
magazine implied, shortly after the fall of Enron:<br /><br />"Credit
derivatives proved to be resilient [. . .]. The episode, and the fact
that the exercise of the Enron credit default swap contracts was done in
an orderly manner without controversy, showed that the market had come
of age."<br /><br />Derivatives had been weighed in the balance and not
found wanting; added to which of course the amounts of capital now
invested in them plus the maturity of what had become a market of
central importance meant that, barring a disaster like the current one,
they could not be allowed to be perceived as having failed, as having an
essential flaw.<br /><br />This "coming of age" of the market was
accompanied by an acceleration of the amount of money invested in this
market. As we now know, whereas banks in particular were important
participants in this market from the beginning, hedge funds became
increasingly involved as they too became important players in global
capital markets. Financial derivatives became somehow synonymous with
the buzzword "globalisation" exotic, powerful and barely understood even
by the most unquestioning fans. So representative had they become as
part of the market fantasist discourse that they were accepted almost
universally (with a few notable exceptions such as George Soros and
Warren Buffett) as what they have become fatal to the securitisation of
risk. Derivatives were institutionally accepted as a marker of good
health to the extent that (with exceptional irony) by 2004 the credit
default swap (CDS) market was accepted as an accurate measure of credit
quality.<br /><br />What had also become clear, however, was that no one
state had the capacity to understand, much less supervise, the CDS
market, whether it be through the more formal regulatory approach of the
USA or the "light hand", self-regulatory approach of the UK
proprietors, respectively, of the most important financial centres in
the world, i.e. the New York and London stock exchanges. In the market
fantasist view, however, not only was this not seen as a disadvantage
but, given the apparently "perfect" functioning of derivative markets
this was one more proof of the superiority of market over state and over
state-channelled democratic oversight the markets were themselves
become democracy in action.<br /><br />At the same time that the
international financial institutions (World Bank, IMF etc.) were
demanding more transparency, openness and accountability from the
governments of countries in development, the globalising financial
services sector was lauding the development of markets of increasing
obscurity and impenetrability, over which regulation and oversight were
all but impossible. The full scale and surreal nature of this market and
its critical importance become apparent only when one looks at Bank of
International Settlements estimates for the total monitored trade in
derivatives some $680,290,700,000,000 for 2007-2008.<br /><br />Continuing
faith in market fundamentalism, however, means that in all of the
current talk of "bail-outs" and "rescue packages" the concentration of
governments around the world has been overwhelmingly on easing the
short-term liquidity crisis, which is to say examining the symptoms of
the illness whilst doing little to examine the long-term causes. It
might (for instance) be thought that the massive state intervention
which the crisis has occasioned, the nationalisation of banks and the
loans of taxpayers' money to failing institutions should be accompanied
by task forces not only to investigate the exposure of each and every
recipient of public money to the "toxic" instruments, but in working out
how to defuse the global market in derivatives, how to regulate such
instruments effectively and how to licence very strictly their future
development. Despite lip-service being paid to regulation of these
kinds, the emphasis is strongly on bail-outs and interest rate cuts
"recapitalisation" is the order of the day. The bankruptcy of this
particular way of thinking, however, is obvious in phenomena such as the
gap between the LIBOR inter-bank lending rate and central bank interest
rates banks know very well what they've been up to and they also now
know that they can't trust the value of their assets.<br /><br />They f * * * you up your markets do, but they were built to, just by you . . .<br /><br />"So
combine an opaque and unregulated global financial system where
moderate levels of leverage by individual investors pile up into
leverage ratios of 100 plus; and add to this toxic mix investments in
the most uncertain, obscure, misrated, mispriced, complex, esoteric
credit derivatives (CDOs of CDOs of CDOs and the entire other alphabet
of credit instruments) that no investor can properly price; then you
have created a financial monster that eventually leads to uncertainty,
panic, market seizure, liquidity crunch, credit crunch, systemic risk
and economic hard landing (Roubini, 2007)".<br /><br />Market fundamentalism
purports to be a moral analysis of human activity, and as a consequence
of the necessity to justify the functioning of capitalism, a variety of
ethical arguments are attached to both markets and capitalism:<br /><br />"Capitalism
is the only system that fully allows and encourages the virtues
necessary for human life. It is the only system that safeguards the
freedom of the independent mind and recognizes the sanctity of the
individual (Tracinski, 2002)."<br /><br />The signalling of virtuous market
functioning is transmitted by price structures decided on through the
use of relevant information and the analysis of risk, with the
concomitant effect that this has on changes in market prices over time.
The precept of risk is another fundamental pillar in the moral basis of
market fundamentalism, the idea that an entrepreneur undertakes to risk
capital through analysing the market for a product, setting the price
through use of available information on both market and product, and
accepting the risk of losing capital that failure to get your
calculations right may bring it is not an exaggeration to say that the
taking of virtuous risk by the entrepreneur justifies by itself the
profit-making underlying capitalism in this reading.<br /><br />However, the
entire purpose of many derivatives (and the CDS in particular) has been
to separate risk from product. Risk analysis, the commodification of
and the trade in risk are specifically designed to factor out this
virtuous uncertainty that justifies profit:<br /><br /><span style="font-style: italic;">"They
mass manufacture moral hazard. They remove the only immutable incentive
to succeed market discipline and business failure. They undermine the
very fundaments of capitalism: prices as signals, transmission channels,
risk and reward, opportunity cost (Vaknin, 2005)."</span><br /><br />The
development of financial derivatives throughout the period since the
1970s which have evolved to reduce risks to the minimum, the continued
failure and bail-out of national and regional banking systems (Mexico,
Brazil, Asia, Turkey) plus unpunished failures (Russia (several times),
Argentina, China, Nigeria, Thailand) notwithstanding market fantasist
belief in moral hazard must continue because it acts as an essential
theological support for market fundamentalism and its corollary, market
discipline. For market fantasists and those tending towards the
left/social democratic section of the political spectrum alike, the
sight of US, European and UK governments effectively nationalising major
actors in their banking sector during the ongoing credit crisis heralds
nothing less than the "end of capitalism".<br /><br />Financial derivatives
have developed since the 1970s, not merely as a counter to the
risk-based functioning of capitalism and themselves weapons of mass
moral hazard, but in virtual defiance of all precepts of risk analysis,
if by risk analysis we understand a process that uses the systematic
analysis of available information in identifying hazards. Using obscure
equations to detach the element of risk on bundles of sub-prime
mortgages so that they can be repackaged as products with an excellent
credit rating, after all, is effectively reversing that process taking a
known product with a probabilistically high risk quotient and then
obscuring that which is known about it.<br /><br />CDOs using subprime
packages, after all, have the effect of making it impossible to
determine the probability and frequency of mortgage default by mortgagee
and the possessing bank alike, making it impossible to determine the
severity of the likely consequences of that risk and thereby
neutralising the two main determinants of which risk itself is a
function. In an inversion of the separation of risk and uncertainty
introduced by Frank Knight's (1921) pioneering work on risk analysis,
"Risk, Uncertainty and Profit", CDOs internalise uncertainty as
something highly profitable a process which could only work (with the
benefit of hindsight) under special, "irrationally exuberant' market
conditions such as those underwritten by the housing and consumer bubble
of the mid-1990s onwards.<br /><br />Quis custodiet ipsos custodes?<br /><br />"There
are ominous long-term implications in the accountants' slide to
marginalization. Balance sheets loaded with toxic assets that are
"marked-to-whatever" will suffer for credibility under the noses of
skeptical investors, who know full well that the pile of manure is still
fermenting somewhere (Peterson, 2008)."<br /><br />Concealed by the
market-fundamentalist beliefs discussed above there is another
interesting and powerful socio-political theme of really-existing
globalization. This is the effective development over the last three
decades of a supra-politics of hyper-accountancy, the massive increase
in growth and concentration of power in the accountancy sector and the
extension of the involvement of the big four accountancy firms
(PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and
KPMG) in every area of nation-state activity, as well as those of
international and multi-national quasi-governmental institutions. The
concentration of power in the big four firms of the accountancy sector
has given those firms shadow-state powers in vital areas of the business
of the nation-state, by becoming at the same time national and
international advisors on privatisation of state functions, prime
engines for the carrying-out of that privatisation and then auditors of
the effectiveness of that privatisation in the UK and the USA. In
addition, there has been a substantial "revolving door" for important
political and governmental actors between employment and
executive/non-executive positions within the big accountancy firms and
employment in public office or government-contracted consultancies.<br /><br />Historically,
the series of mergers that increased the power of the big accountancy
firms in the last two decades of the twentieth century came accompanied
by two further phenomena that at once increased conflicts of interest
whilst at the same time pushing the firms to ignore them, in the search
for audit clients and profits. These two phenomena were, firstly, that
audit clients became increasingly sophisticated purchasers of
accountancy services and thus shopped around more for the best deal; and
secondly, because of the flexibility in the interpretation of
accounting standards, audit clients increasingly looked for accounting
firms that would give interpretations as close as possible to those
desired by the board, so-called "opinion shopping", so that the
financial statements of the firm resembled as closely as possible the
picture of the firm that the board wished to present.<br /><br />Both of
these two factors increased pressures to lower prices and diminish
profit margins and thus increased the tendency towards mergers, to take
advantage of the economies of scale that such mergers might bring. At
the same time, the increasingly unhealthy nature of the auditor/client
relationship was further exacerbated by the increase in numbers of
accountants leaving their previous employer and taking up posts in the
firms that they had previously been auditing (for instance the
relationship between Arthur Andersen and Enron). One other logical
consequence of the shrinkage in profit margins for auditing was the
diversification of the big accountancy firms into (particularly)
management consultancy, in order to pursue non-audit profitability.<br /><br />Whilst
this may have been logical, it of course represented an even starker
conflict of interest; providing management services to a firm for which
one also had responsibility for auditing was a direct conflict and yet
the practice grew and was subjected to very little effective regulation.
As a direct result of the increasing influence of the big firms over
accountancy institutions, as well as increases in direct political
influence in the US and UK governments, initiatives to regulate
auditor/client relationships by bodies such as the Auditing Practices
Board in the UK and the Securities and Exchange Commission in the USA
were stillborn, whilst the big accountancy firms continued to insist
that if no direct evidence of conflict of interest could be produced,
then none existed.<br /><br />Auditors of course became involved in the
trade in derivatives through the auditing service which they provided to
financial services and banking institutions, only here the problems and
conflicts of interest were worse. Firms were being paid to audit
banks/financial services firms to whom they were also contracted, in
order to "properly audit" capital, cash flow and assets of the
bank/firm, to asses the "fair value" for existing and new derivative
products, a value which was arrived at by using selected information
from and modelled by methods provided by the firm itself effectively a
perfect storm of interest conflicts. As discussed above, however,
derivatives have increasingly been constructed to detach them from the
inherent risk of the original product and the auditors had little
knowledge of the market into which they were sold (where markets
actually existed), so as to make the concept of fair value increasingly
imaginary yet it became an increasingly important factor in marketing
these surreal products.<br /><br />In general terms auditing services
provided by firms of accountants have been consistently promoted as a
technology for the management of risk, whereas the reality of the ways
in which auditing has developed in the last three decades of the
twentieth century mean that auditing is in increasing danger of becoming
that thing of which it purports to be the cure, i.e. a creator rather
than a manager of risk. As Ernst & Young themselves put it:<br /><br />".
. . mathematically modelled fair values based on management predictions
are not fair values as that term is generally understood, and their use
raises many questions about the reliability and understandability of
the information (Ernst & Young, 2005)"<br /><br />By 2008, however,
during the first financial crisis to occur under a predominantly fair
value regime, opinions seemed to have changed. PricewaterhouseCoopers
for instance still believes that: "Fair value measurement does not
create volatility in the financial statements, any more than a pipeline
creates what flows through it. It captures and reports current market
values".<br /><br />According to PWC the financial statement by the auditor
is an objective and neutral analysis of the current state of affairs;
there has been no pressure on the auditor to comply with board
requirements, there is no close and mutually beneficial relationship
between auditor and client, and the information provided by the firm (or
the model used) is as fair and objective as can be managed.<br /><br />Despite
the massive problems that financial derivatives have already caused and
(as related above) the sheer volume of those still being traded, the
big four accountancy firms continue to defend fair value calculations as
being the best way to assess the value of such derivatives.
Irrespective of "financial statement volatility, reporting the impact of
risks and the judgements required to develop and implement fair value
measures" and "the impact of fair value on regulatory measures of the
capital adequacy of financial institutions" (PricewaterhouseCoopers,
2008, p. 9), "fair value yields a relevant measure for most financial
instruments". The big accountancy firms quite rightly point out that
there were few complaints from financial services firms and investment
banks concerning fair value when the markets were forging ahead; the
complaints (akin to those about short selling) have all occurred since
the roll-out of the sub-prime initiated financial crisis which, given
what is now known about the way that CDOs have been put together, is not
really relevant to a consideration of whether the ways by which fair
value is calculated can ever be sufficient for such surreal financial
instruments.<br /><br />Markets through the looking-glass<br /><br /><span style="font-style: italic;">"The
aide said that guys like me were "in what we call the reality-based
community," which he defined as people who "believe that solutions
emerge from your judicious study of discernible reality." . . . "That's
not the way the world really works anymore," he continued. "We're an
empire now, and when we act, we create our own reality" (Suskind,
2004)."</span><br /><br />"There is no use trying", said Alice. "One can't
believe impossible things". "I dare say you haven't had much practice",
said the Queen. "When I was your age, I always did it for half an hour a
day. Why, sometimes I've believed as many as six impossible things
before breakfast (Carroll, 1871)".<br /><br />The causes behind the current
crisis are multiple, complex and are the reflection of a rapid, massive
and surreal change in the culture of market governance globally a leap
from a "reality-based" market system into one based on imagination. The
development of such an enormous market in financial derivatives has
involved the global co-optation and active participation of states,
multinational and international organisations, international financial
institutions, professional organisations and institutional bodies,
governments, civil services, political parties and political actors over
a short period of time. The willing suspension of disbelief on the part
of so many important actors globally meant that this crisis was (along
with others like it in the future) inevitable. It is important to
remember as well, however, that this was not just a willing suspension
of disbelief concerning the market in derivatives, the market in bonds,
the housing market and so on, if not a willing suspension of democratic
control by which the governments of the North/West gave up control over
their own governance to the random vagaries of shadow markets which
guaranteed disaster.<br /><br />It is also highly unlikely that an ideology
of such penetration and extent (in which the self-interest of so many
important global actors is involved in praising the market-emperor's new
clothes) will learn too much from such a crisis. There are too many
vested interests in patching up the old system and willing the
derivatives market back into life, even though it is extremely likely
that there are more problems than the infamous "sub-prime" derivatives
lurking in these muddy waters. In the light of
$680,290,700,000,000-worth of global trade in derivatives, $700 billion
to "rescue" the perpetrators of this market looks not only feeble but
pointless.<br /><br />The recession in the rich North/West is going to be
made longer and harder by a refusal of responsible parties to address
fundamental flaws in the system, and pessimists such as Joseph Stiglitz
and Nouriel Rabini are already predicting a prolonged, L-shaped
recession of the type experienced by Japan from the 1990s up to 2005
(and now again). In the meantime, those same investment banks whose
collapse occasioned sundry rescue packages use those rescue packages to
pay themselves pre-collapse era bonuses, continuing to behave as if
nothing had happened.<br /><br />The consequences of fundamentalist market
fantasies have come home to roost it should be for the last time but it
almost certainly will not be. The development of market bubbles
facilitated by the development of ever-more sophisticated financial
instruments has spawned a growth industry and a global support network
based on the power of belief, a belief that no government and no
multi-national or supranational institution need depend on something as
boring and irritating as mere democracy. Instead, politician, minister,
president, accountant and CEO alike, all will take deep breaths, close
their eyes and believe six impossible things before breakfast.</div>
Anonymoushttp://www.blogger.com/profile/13540811206265564742noreply@blogger.comtag:blogger.com,1999:blog-4072002304459509138.post-53285988772309227982012-10-08T09:49:00.003-07:002012-10-08T09:49:56.497-07:00The rot of the "free-market'<div style="text-align: justify;">
When Thomas Jefferson wrote in his March 17, 1814 letter to Horatio
Spatford that "Merchants have no country, the mere spot they stand on
does not constitute so strong an attachment as that from which they draw
their gains," he was being honest and ominously prescient.<br /><br />A
report in the December 19, 2009 New York Times, "In Industrial Thailand,
Health and Business Concerns Collide," (click here=1&th&emc=th)
ruthlessly rips the scab from the festering sore that is the Asian
country's industrial city of Map Ta Phut, on the northern shores of the
Gulf of Thailand.<br /><br />The Republican mantra has long been to leave
every issue to the free market. In Map Ta Phut the free market is
literally, not figuratively, killing people with pollution so extreme
that the villagers cannot walk in the streets after a rain or breathe at
night when the spewing stacks from the Japanese steel companies and the
German chemical plants crank highest. Litigation brought by 27
villagers to halt new expansion was fought bitterly by international
industrial investors and the Thai Chamber of Commerce. However the
villagers won, and the proposed expansion has been halted (for now), the
verdict did nothing to restrict the level of present toxins that are
wafting from the stacks or being flushed into sewers, and thence into
the Gulf and the Pacific Ocean.<br /><br />More -- as if more might now be
needed -- evidence that neither the free market nor its corporate
components give the first damn what damage they do to the environment,
or the peoples who live in it. After all, the executives don't have to.
They reside in the rarified atmospheres that are never touched by the
putrefying carnage their manufacturing schemes provoke.<br /><br />Exactly
as it is with American health insurers, by the way. Their Gulfstream
private jets fly well above and their 110-foot yachts sail well beyond
and their stretch limos with blackened windows drive well away from the
cemeteries of the 45,000 who perish each year because they either cannot
afford health insurance coverage, or have had their coverage canceled
when they needed it most.<br /><br />These are not good people, the likes of
Ben Nelson, Joe Lieberman, Mary Landrieu, Blanche Lincoln, and every
Republican in the House and Senate have attached themselves to. I am
conflicted, whether to support the Senate's current health reform bill.
Given its emasculated form of no single-payer, no public option, no
Medicare buy-in, nor not even a trigger, it nonetheless is better than
leaving the status quo the status quo that will consume, and therewith
doom the entire US economy within a very brief period. (Simple
arithmetic: By the Rule of 72, wherein the currently escalating premium
rate of 10 - 15%, the present family of four premium of $15,000 will
double within six to seven years, both employers and individuals will be
forced to opt out of coverage altogether. And how do ya like them
apples?) As bitter a pill as it is, if we get nothing, it's unlikely
we'll get anything for another decade or more, which by then will be a
decade too late for most, if not all, of us.<br /><br />What I am not
conflicted over, however is the moral obligation to strive as hard as we
can to remove from office every Democratic senator and representative
who put the welfare of Jefferson's merchants above that of their
countrymen. Nor must we shirk from working as diligently to also
separate every Republican from their offices. Let them, as private
citizens, devote as much time as they wish to bed the corporate johns
they hired themselves out to.</div>
Anonymoushttp://www.blogger.com/profile/13540811206265564742noreply@blogger.comtag:blogger.com,1999:blog-4072002304459509138.post-53303197177157532122012-10-08T09:48:00.001-07:002012-10-08T09:48:52.288-07:00Stephen King Meets the Estate Tax<div style="text-align: justify;">
Imagine a story about tax policy created by horror writer Stephen King. A
fictional Congress, divided between anti-tax ideology and fiscal
responsibility, amends the inheritance tax on the very wealthy so that
it disappears entirely one year and then returns at steeper rates the
following year.<br /><br />Over the zero year, death rates skyrocket in the
nation's most affluent zip codes. Seemingly robust and healthy
billionaires perish in mysterious accidents. Lexus wheels fall off from
Bloomfield Hills to Scarsdale to Beverly Hills. Sailboats and yachts
inexplicably crash in calm coastal and Caribbean waters. Tainted
champagne wipes out clusters of prosperous alumni at class reunions from
dozens of elite prep schools from Groton to Choate.<br /><br />Meanwhile,
thousands of infirmed elders take their own lives in organized rituals
called "legacy sacrifices." Pledging unlimited inheritances to their
heirs, these multi-millionaires die with smiles on their faces knowing
they've outfoxed Uncle Sam one last time.<br /><br />If only this were a fiction.<br /><br />We
could actually see these scenarios play next year, unless the real U.S.
Congress takes action and prevents one of the more bizarre twists in
tax legislation in history from coming to pass.<br /><br />In 2010, the
estate tax, our nation's only levy on inherited wealth, is set to
disappear completely. Then in 2011 the tax returns to 2001 levels, with
substantially lower wealth exemptions and higher rates. Talk about
perverse incentives.<br /><br />The stage was set for this scene in 2001,
when President Bush and conservative tax cutters tried to abolish the
estate tax. They didn't have the Senate votes, however, for permanent
repeal, nor could they afford to lose the hundreds of billions of
dollars the estate tax would generate over the subsequent decade.<br /><br />Congress
structured the law to gradually phase out the tax, allowing it to
expire in 2010. Then, in a gimmick to mask the real cost of the tax cut,
the law sunsets in 2011, reverting back to its 2001 levels.<br /><br />Tax
cutters in 2001 were confident they would return in subsequent years to
finish off the estate tax. But the nation's fiscal situation immediately
began to deteriorate and Republicans lost their majority in Congress.
In October of this year, the organized wealthy families that spent
millions in lobbying Congress to save billions finally conceded they
lacked the votes to get rid of the estate tax forever.<br /><br />You have
to remember that the estate tax ‹ at its 2009 level ‹ only effects one
in 500 estates. Over the last eight years, the law has been revised so
the wealth exemption level rose from $1 million to where it is today, at
a generous $3.5 million or $7 million for a couple. Rates declined from
55 percent in 2001 to 45 percent today. This exclusive tax cut for
multi-millionaires and billionaires cost hundreds of billions of dollars
in lost revenue, a cost added directly to our national debt.<br /><br />Two
weeks ago, the U.S. House of Representatives voted to freeze the
federal estate tax at this current level. This is a positive and
responsible step. Now the Senate must act.<br /><br />The Senate could pass
legislation that mirrors the House version and settle the issue for
years to come. Or they could freeze the tax at its current level for one
year ‹ and take it up next year. What they shouldn't do is further
weaken the estate tax by passing proposals such as those introduced by
Sens. Jon Kyl (R-AZ) and Blanche Lincoln (D-AR).<br /><br />Without the
estate tax, we could lose almost $1 trillion in revenue over the next
two decades. There are only three ways to fill that gap: cut spending,
raise taxes on the middle class, or, our current favorite: pile it onto
the national debt.Instead of leaving prodigious amounts of debt for the
next generation, we should retain a meaningful estate tax.<br /><br />During
a time of war and economic crisis, the idea of further tax breaks for
multi-millionaires and billionaires is unseemly and unfair.</div>
Anonymoushttp://www.blogger.com/profile/13540811206265564742noreply@blogger.comtag:blogger.com,1999:blog-4072002304459509138.post-68648141544961121672012-10-08T09:47:00.001-07:002012-10-08T09:47:16.241-07:00Who Really Owns the Assets of America<div style="text-align: justify;">
Walter Burien is a personal friend of mine and his message about economics is one of the most important one on the planet!</div>
Anonymoushttp://www.blogger.com/profile/13540811206265564742noreply@blogger.comtag:blogger.com,1999:blog-4072002304459509138.post-85297031582484482902012-10-08T09:44:00.005-07:002012-10-08T09:44:46.689-07:00Greece's Debt: The Hypocrisy of Neoliberalism<div style="font-family: helvetica; font-weight: bold; margin-bottom: 0cm; text-align: justify;">
<span style="font-size: x-small;">Two
days ago Greece suffered its second debt-rating blow
in a week, when Standard & Poor's <a href="http://www.blogger.com/blogger.g?blogID=4072002304459509138" target="_blank" title="">downgraded</a> two top banks and
warned that the Greek economy was actually
in worse shape than it had predicted. Last week,
Fitch Ratings lowered its rating on Greece thus raising fears of a
potential default. On Monday the Greek government started a
'counter-attack' against the negative perspective of the country's
economic situation. In a televised address Prime Minister George
Papandreou outlined <a href="http://www.blogger.com/blogger.g?blogID=4072002304459509138" target="_blank" title="">sweeping changes</a> to increase competitiveness and
combat corruption and tax evasion.</span></div>
<div style="text-align: center;">
<span style="font-size: x-small;"><img border="0" height="274" src="http://www.opednews.com/populum/uploaded/athens_wall-17771-20091218-30.jpg" width="410" /></span></div>
<span style="font-size: x-small;"><span style="font-size: xx-small;">"Economy,
Equality and Justice for All". A slogan written on a bank branch
entrance in Athens December 14, 2009. Greek Premier George Papandreou
will outline economic policies late on Monday, aiming to reassure
markets and EU partners demanding specific ways to cut deficits
threatening to sink the euro zone's weakest member. (Reuters)</span></span><br /><div style="font-family: helvetica; margin-bottom: 0cm; text-align: justify;">
<span style="font-size: x-small;">Athens has come
under strong pressure these days from the European Central Bank and
the bureaucratic leadership of Brussels to adopt radical measures to
rebuild its economy after the recent downgrades. Indirectly, but
clearly, the EU asks from the newly-elected Greek government to send
the bill to the middle and lower classes; to exercise a strict
economic policy of austerity, reduce social spending and freeze
salaries for at least four years. </span>
</div>
<div>
</div>
<div style="font-family: helvetica; margin-bottom: 0cm; text-align: justify;">
<span style="font-size: x-small;">The major problem is
that Europe's economic leadership, as well as these uncontrollable
rating agencies, pretend to ignore the actual reasons which brought
Greece and possibly other countries in the near future on the
edge of fiscal precipice. It shouldn't surprise anybody. The appeal
to public debt and deficit is a known tactic of neoliberalism,
especially in times of financial disorder. </span>
</div>
<div style="text-align: justify;">
</div>
<div style="font-family: helvetica; margin-bottom: 0cm; text-align: justify;">
<span style="font-size: x-small;">The advocates of
uncontrollable, devouring, Capitalism, try to suppress the fact that
among the major factors for public deficits burgeoning, is the
continuous feeding of Capital's tremendous profits - benefits through
scandalous tax exemptions and various sponsorships as a result of the
existing corruption between the State and the capitalist private
sector. Its characteristic that the Greek State loses around 1.2
billion Euros as a result of tax exemptions on ship-owning companies,
while between 2005 and 2009 the profits of the country's 300 largest
Cos. and banks were increased by almost 365%. "Some 300 companies
and banks in the last five years benefited from a reduction in tax
rates," Finance Minister George Papaconstantinou had said last
November.</span></div>
<div style="text-align: justify;">
</div>
<div style="font-family: helvetica; margin-bottom: 0cm; text-align: justify;">
<span style="font-size: x-small;">Furthermore, the
Greek State loses around 2 billion Euros every year from the tax
evasion of employers who promote uninsured labor, thus contributing
to the devitalization of the pension system. This amount is
infinitely small related to the profiteering of Greece's creditors
mainly foreign or local banks. It should be noted that from the
annual budget of 2009, almost 42 billion Euros had been withheld for
this purpose. As a result of this social spending has been
significantly reduced, in favour of those who benefit from the high
rates of Greek government bonds. </span>
</div>
<div style="text-align: justify;">
</div>
<div style="font-family: helvetica; margin-bottom: 0cm; text-align: justify;">
<span style="font-size: x-small;">An obvious question
comes to my mind: Doesn't the European Union carry any
responsibilities for this situation? Nobody can deny that national
governments, including Greece's, committed significant mistakes
in their economic policies. But, on the other hand, the bureaucratic,
pro-capitalist, elites in Brussels, Frankfurt or London cannot behave
like Pontius Pilate. Furthermore, they were the captains of Europe's
route to economic neoliberalism during the last decade a route
which brought the EU in today's crisis. The so-called Stability and
Growth Pact (SGP) is in danger due to the financial circumstances
while there is a need for a generous institutional reform of the
Eurozone. Because, unfortunately, the recent economic crisis exposed
the Union's actual impotence to foresee and, moreover, face such
negative economic situations.</span></div>
<div style="text-align: justify;">
</div>
<div style="font-family: helvetica; margin-bottom: 0cm; text-align: justify;">
<span style="font-size: x-small;">The victims of
national debt throughout the years aren't few. From Yugoslavia (1991)
to Ukraine (1994) and from Indonesia to Zimbabwe, the onerous
conditions set by their foreign creditors led to strict austerity,
tax increases, rapid salaries decreases and job cuts thus destroying
their economies. Greece, or any other EU member-state, is not going to be their next victim.</span>
</div>
<div style="text-align: justify;">
</div>
<div style="font-family: helvetica; margin-bottom: 0cm; text-align: justify;">
<span style="font-size: x-small;"><span style="font-weight: bold;">The 'Priesthood' of rating agencies</span></span></div>
<div style="text-align: justify;">
</div>
<div style="font-family: helvetica; margin-bottom: 0cm; text-align: justify;">
<span style="font-size: x-small;">Standard & Poor's,
Fitch and Moodys are regarded as the three major rating agencies
which provide opinions to investors on the ability and willingness of
issuers to make timely payments on debt instruments. According to an
official testimony by U.S. Senator Paul. S. Sarbanes, who since 2002
had publicly noted their controversial function, credit rating
agencies play a very important role in the capital markets, thus
having crucial impact on world economic structure (03-07-2006). On
November 2004, the <a href="http://www.blogger.com/blogger.g?blogID=4072002304459509138" target="_blank" title="">Washington Post</a></span> wrote that "from their Manhattan
offices, they can, with the stroke of a pen, effectively add or
subtract millions from a company's bottom line, rattle a city budget,
shock the stock and bond markets and reroute international
investment". It's characteristic that until the day of their
collapse, banking giants like AIG and Lehman Brothers were given very
positive investment-grade ratings from the above agencies.
</div>
<div style="text-align: justify;">
<span style="font-size: x-small;">The article was quite
revealing: "Without their ratings, in many cases, factories can't
expand, schools can't get built, highways can't be paved. Yet there
is no formal structure for overseeing the credit raters, no one
designated to take complaints about them, and no regulations about
employee qualifications. The big three ostensibly function as
a disinterested priesthood. When a company, town or entire nation
wants to borrow money by selling bonds, the market almost always
requires that the rating companies bless the move by running a kind
of credit check. Bonds they deem safe get a good rating. The higher
the rating, the lower the interest rate the borrower must pay"</span></div>
Anonymoushttp://www.blogger.com/profile/13540811206265564742noreply@blogger.com