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Time For Sanity

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Amid all of the television news specials, turgid essays and grim pictorials we have seen on the tenth anniversary of the September 11 attacks – there have been a few encouraging glimpses of sanity.  Several commentators have pointed out that Osama Bin Laden got exactly what he wanted when America reacted to that tragedy by spending trillions on military assaults, which ended up killing unknown thousands of innocent Muslims – also known as “collateral damage”.

How many otherwise peace-loving Muslims will be attracted to Islamist extremism because of outrage over a “war on terror” they perceive as a “war on Islam”?  How badly has our economy been damaged because a military invasion of Iraq was sold as an effective way to prevent another 9/11?

Another tragic change Bin Laden brought to America was the inflammation of a pre-existing National Security Gestapo, which had always been hell-bent on having its way – individual freedom and privacy be damned!  We have witnessed how Barack Obama has been more than happy to accommodate those forces – many of which are private contractors – deliberately placed out of the reach of that pesky Freedom of Information Act.

How did we get to this deteriorated situation?  The mass media bear a large share of the responsibility.  Their need to out-sensationalize the competition helped fuel a consensual mindset, ginned-up with rage and ready to support whatever junta could strike back at our enemy with unrestrained force.  We were told that this enemy was terrorism itself – a tactic.  Our government had declared war against a tactic.  Anyone who questioned that battle was characterized as weak or unpatriotic.

It is only now – ten years after the tragedy – when people are willing to take a rational look at how our political leaders and our media establishment reacted to (or took advantage of) these events.

Spencer Ackerman wrote an article for Wired with the title, “How to Defeat Terrorism:  Refuse to Be Terrorized”.  In the political world, the refusal to be terrorized requires the courage to stand up to intimidation and accusations of being “weak on terror”.  In fact, our political leaders have been rendered weak from terror.  That weakness has resulted in significant deterioration of our personal liberties as well as capitulation to those lobbyists and pressure groups demanding unlimited expenditures in the name of “homeland security”.  Spencer Ackerman provided this explanation:

Look at the charts that Danger Room’s Lena Groeger compiled.  She tallies $6.6 trillion in defense spending after 9/11.  There is nothing that al-Qaida could possibly do to justify even a slice of such a monster expenditure.  Why did it happen?

Former White House counterterrorism chief Richard Clarke has an answer.  “There’s going to be a terrorist strike some day,” Clarke told Frontline for its “Top Secret America” documentary this week.  “And when there is, if you’ve reduced the terrorism budget, the other party, whoever the other party is at the time, is going to say that you were responsible for the terrorist strike because you cut back the budget.  And so it’s a very, very risky thing to do.”

*   *   *

It’s much harder to be the one to stand up and say the threat of terrorism is too minor for such expanded surveillance, and the government needs to stop.  When libertarian Sen. Rand Paul (R-Kentucky) made precisely that case, Democratic Senate leader Harry Reid (D-Nevada) subjected him to cheap, hypocritical demagoguery.

The only way this changes is if citizens change the political incentives for politicians.  Two-bit terrorists will always be around, sadly.  But when the Harry Reids get major political blow-back for attacking the Rand Pauls, then – and only then – will the 9/11 Era be truly over.

Another important theme of Ackerman’s essay is the absence of an “end game” for this war on terror.  After conceding that Defense Secretary Leon Panetta may be entirely justified in claiming that al-Qaida is on the verge of strategic collapse, Ackerman emphasizes that “it would be foolish” to relent at this point:

But all of that is only justifiable if the new U.S. Shadow Warsundeclared, largely covert wars in Pakistan, Yemen, Somalia and beyond – actually end soon.

*   *   *

When Barack Obama ran for president, his national security team told me, in an extensive series of interviews, that a major focus of his presidency would be to confront what they called the “politics of fear” – the national-security freakout that led to counterproductive post-9/11 moves like invading Iraq.  But since coming to power, Obama has accommodated himself to the politics of fear far more than he’s confronted it.

*   *   *

Only when citizens make it acceptable for politicians to recognize that the threat of terrorism isn’t so significant can the country finally get what it really needs, 10 years later:  closure.

President Obama created a new challenge for himself:  By killing off Bogeyman Bin Laden and with the imminent destruction of the world’s largest terrorist organization, he is now faced with the duty to lead America out of this dark age of terrorphobia.


 

Secret Phone Call

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I’ve been reading a great number of articles by commentators who have expressed outrage concerning President Obama’s shocking capitulation in the negotiations involving the debt ceiling bill.  Despite the Democratic Party’s tactic of blaming the “Tea Party terrorists” for the all cuts – no revenue, pro-billionaire legislation, a few pundits have seen through this fog to point out that Obama actually got the bill he secretly wanted all along.  Glenn Greenwald presented a solid case for this theory at Salon.

Polling guru Nate Silver wrote two items on August 1, in which he analyzed the Congressional voting and demonstrated that President Obama – despite having been afforded the opportunity to include provisions in the bill to make it more economically stimulative and less onerous for those experiencing the greatest hardship from the economic crisis – decided to leave some available provisions “on the table”.

Nate Silver initially made this observation:

Fiscal austerity at a time of economic distress, and on largely Republican terms, is not what Democrats thought they were getting when they elected Mr. Obama in 2008.  Mr. Obama might have done more to make short-term stimulus – like further reductions to the payroll tax, which would not have violated the Republicans’ ostensible goals – the  price for long-term austerity.

Although it is impossible to prove one way or the other, I am not persuaded by the notion that Mr. Obama could not have delivered a better result to Democrats had he done more to stand his ground.  Despite the dissent in the Republican caucus, which had originally seemed like a tactical victory for Democrats, the compromise wound up looking more like Mr. Boehner’s original bill than Mr. Reid’s.

Later that evening, Mr. Silver provided an analysis, which exposed Obama’s abandonment of the objectives he was elected to promote:

These results seem to suggest that Mr. Obama left something on the table.  That is, Mr. Obama could have shifted the deal tangibly toward the left and still gotten a bill through without too much of a problem.  For instance, even if all members of the Tea Party Caucus had voted against the bill, it would still have passed 237-to-193, and that’s with 95 Democrats voting against it.

Specifically, it seems likely that Mr. Obama could have gotten an extension of the payroll tax cut included in the bill, or unemployment benefits, either of which would have had a stimulative effect.

*   *   *

With that payroll tax cut, the deal becomes a much easier sell to Democrats – and perhaps also to swing voters, particularly given that nobody spent much time during this debate talking about jobs.  Plus, it would have improved growth in 2012 and, depending on how literally you take the economic models, improved Mr. Obama’s re-election chances.

As many observers have noted, the plutocracy has been able to accomplish much more with Obama in the White House, than what would have been achievable with a Republican President.  This latest example of a bipartisan effort to trample “the little people” has reinforced my belief that the fake “two-party system” is a sideshow – designed to obfuscate the insidious activities of the Republi-Cratic Corporatist Party.

What follows is the transcript of an imaginary telephone conversation between President Obama and Roger Ailes of Fox News:

Obama:  Hi Rodge!

Ailes:  Hi Barry!  Congratulations on the debt ceiling bill!  Great work!

Obama:  Thanks.  I won’t have to renew the Bush tax cuts again until after the election.  That’s a relief!  Unfortunately, we’re getting some bad polling numbers now.  Problems with the base.  I need you guys to lean on the “liberal” stuff a little harder.  Both O’Reilly and Hannity have been doing OK on it – but I just wish they would get back to some more of the “socialist” accusations.  That would really help rehabilitate my cred with my estranged base.

Ailes:       The “socialist” shtick was more Beck’s routine – but I’ll get them on it.

Obama:   I found some old pictures of myself with Bill Ayers that you guys might want to use    . . .

Ailes:       Ayers is sooooo 2008!  We need something new.  We need to get you to Syria for a meeting with Bashar al-Assad.  When you shake hands with him – make sure you bow!  We can get a lot of mileage here from that!

Obama:   No!  That will piss off too many liberals – especially the Jews.  I’m trying to keep the smart people in my corner!

Ailes:       OK.  OK.  We just really need to get you on some sort of apology tour or something.  You could start traveling around to abortion clinics and promising them some federal aid  .  .  .

Obama:   Great one, Rodge!  I love that!

Ailes:       I’ll plant some of our protesters along the way – the ones who’ve already been cleared by the Secret Service.

Obama:   Yeah!  Bring back that guy with the fake assault rifle!  He was a trip!

Ailes:       I have someone better.  This guy has been posing as a “Tea Party activist” at “town meetings”.  He’s a great new talent!

Obama:   We could set up another “Joe the Plumber”-type of confrontation with that guy!

Ailes:       Definately!  I’ll have my people put a script together.  That story will have some legs that will carry us all the way to the election!  . . .  Speaking of legs – I’m getting some good numbers in on Bachmann!

Obama:   How’s our girl doing?

Ailes:       Great!  She’s really gonna’ kick some ass in Iowa!

Obama:   I saw her on with Sean the other day.  She’s doing a great job!  Are you guys going to start a scandal involving Mitt?

Ailes:       I need to maintain plausible deniability about what Rupert’s operatives are up to.  You know  .  .  .

Obama:   Gotcha!  ‘Nuff said!

Ailes:       Well, I’ll let you get back to work.  You must have loads of angry campaign donors trying to bend your ear right about now  . . .

Obama:   Yeah  . . .  But that’s not where the real money is.

Ailes:       Amen!


 

Time For Some Serious Pushback

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The American people are finally getting angry.  I thought it would never happen.  In case you haven’t heard about it yet, the most popular topic on Twitter right now is:  #FuckYouWashington.  (For those who don’t like typing dirty words on their computer – there is the alternative #FYW.)  If you’re looking for some refreshing reading, which will reinforce your confidence in the people of this great country (especially after excessive exposure to the depressing, “debt ceiling” debate) be sure to check in on it.

Meanwhile, our fake, “two-party system” is facing a fresh challenge.  The Republi-Cratic Corporatist Party is being threatened by an Internet-based organization called, Americans Elect.  Here’s how the group describes itself:

Americans Elect is the first-ever open nominating process.  We’re using the Internet to give every single voter – Democrat, Republican or independent – the power to nominate a presidential ticket in 2012.  The people will choose the issues. The people will choose the candidates.  And in a secure, online convention next June, the people will make history by putting their choice on the ballot in every state.

*   *   *

We have no ties to any political group – left, right, or center.  We don’t promote any issues, ideology or candidates.  None of our funding comes from special interests or lobbyists.  Our only goal is to put a directly-nominated ticket on the ballot in 2012.

*   *   *

The goal of Americans Elect is to nominate a presidential ticket that answers to the people – not the political system.  Like millions of American voters, we simply want leadership that will work together to tackle the challenges facing our country.  And we believe a direct nominating process will prove that America is ready for a competitive, nonpartisan ticket.

Just when the Obama Administration was getting comfy with the idea that it could take the voters for granted  …  along came this new threat in the form of Americans Elect.  The timing couldn’t have been more appropriate.  A recent CNN poll revealed that Obama’s support among liberals has dropped to “the lowest point in his presidency”.  The man whom I characterized as the “Disappointer-In-Chief” during his third month in office, is now being referred to by The Nation as the “Compromiser-in-Chief”.  Ari Melber’s essay in The Nation provides a great summary of the criticism directed against Obama from the Left.  One example came from economist Paul Krugman, who described Obama as “President Pushover”.

In order to resist any new challenges to the status quo, the Republi-Cratic Corporatist Party is taking advantage of the proposed “debt ceiling” legislation to cement its absolute control over the United States government.  Ryan Grim of The Huffington Post provided us with the revelation of a bipartisan effort to create an authoritarian governing body, designed to circumvent Constitutionally-prescribed legislative procedures:

This “Super Congress,” composed of members of both chambers and both parties, isn’t mentioned anywhere in the Constitution, but would be granted extraordinary new powers.  Under a plan put forth by Senate Minority Leader Mitch McConnell (R-Ky.) and his counterpart Majority Leader Harry Reid (D-Nev.), legislation to lift the debt ceiling would be accompanied by the creation of a 12-member panel made up of 12 lawmakers — six from each chamber and six from each party.

Legislation approved by the Super Congress — which some on Capitol Hill are calling the “super committee” — would then be fast-tracked through both chambers, where it couldn’t be amended by simple, regular lawmakers, who’d have the ability only to cast an up or down vote.  With the weight of both leaderships behind it, a product originated by the Super Congress would have a strong chance of moving through the little Congress and quickly becoming law.  A Super Congress would be less accountable than the system that exists today, and would find it easier to strip the public of popular benefits.  Negotiators are currently considering cutting the mortgage deduction and tax credits for retirement savings, for instance, extremely popular policies that would be difficult to slice up using the traditional legislative process.

House Speaker John Boehner (R-Ohio) has made a Super Congress a central part of his last-minute proposal, multiple news reports and people familiar with his plan say.

Independents and “Third-Party” members of Congress would be excluded from this “Super Congress”, thus subverting any attempts by the “little people” to steal control of the government away from the Republi-Cratic Corporatist Party.  Concern about the upstart Americans Elect organization could have been the motivating factor which inspired the “Super Congress” plan.  Tom Friedman’s recent New York Times commentary must have set off a “treason alert” for the Congressional kleptocrats, who read this:

Write it down:  Americans Elect.  What Amazon.com did to books, what the blogosphere did to newspapers, what the iPod did to music, what drugstore.com did to pharmacies, Americans Elect plans to do to the two-party duopoly that has dominated American political life – remove the barriers to real competition, flatten the incumbents and let the people in.  Watch out.

The Republi-Cratic Corporatist Party is already watching out.  That’s why they are moving to create a new, imperial “Super Congress”.  Be sure to express your opposition to this power grab by logging-on to Twitter and sharing your feelings at #FuckYouWashington.


Maria Cantwell For President

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I was going to hold off on this and give President Obama the benefit of a doubt – at least for a few months.  Nevertheless, after reading the magnificent piece by Barry Ritholtz, entitled:  “The Tragedy of the Obama Administration”, I decided that it was time to start discussing leadership alternatives for the next Presidential term.

On October 30, the Associated Press published the results of a poll it conducted with Knowledge Networks.  Forty-seven percent of the Democrats surveyed expressed the opinion that Obama should be challenged for the 2012 Democratic Presidential nomination.  In the wake of the mid-term election massacre, I expect that more Democrats will be anxious to find a new standard-bearer for their party in 2012.  The AP article concerning the AP-KN poll, mentioned the theory that the public’s opinion of Obama could change if the economy improves.  Unfortunately, most American consumers will not observe any significant improvement in the economy during the next two years.  There is a greater likelihood that the Chicago Cubs will win next year’s World Series.

We currently find ourselves bombarded with a wide spectrum of opinions, which purport to explain what the results of the 2010 elections really mean.  The most obvious conclusion to be drawn from this event is that the voters resent being taken for chumps.  Obama’s supporters were promised change they could believe in by a President and a party that sold its soul to the Wall Street megabanks at the cost of America’s future economic health.  When he had the opportunity to do so in early 2009, Obama refused to put those too-big-to-fail, zombie banks through temporary receivership.  As a result, we are now approaching a situation which – according to financial risk management expert Chris Whalen – will necessitate another round of bank bailouts.  When President Obama had the opportunity and the public support (not to mention Democratic control over both houses of Congress) to enact an adequate stimulus program to save the economy from a decade(s) – long, Japanese-style recession, he refused to so.  If an extra $600 billion had been added to the $787 billion in 2009 (as part of a better-thought-out, infrastructure-based stimulus program) we would be experiencing significant economic growth and a recovering job market right now.  Australia keeps reminding us of this.  (Oops!  Australia just did it again!)  Instead, America finds itself in a situation wherein the Fed is now appropriating that $600 billion toward another round of quantitative easing, which will serve no other purpose than to push investors into the stock market.  According to economist Andy Xie, those stock investors will have an unpleasant experience when Chairman Bernanke’s latest asset bubble pops in 2012.

While many Senate Democrats (along with operatives from the Treasury Department) were busy removing all of the teeth from the financial reform bill, Maria Cantwell was fighting those efforts as one of the few advocates for the American taxpayers.  Back on May 19, Arthur Delaney and Ryan Grim of The Huffington Post described how Senator Cantwell stood up to the efforts of Harry Reid to use cloture to push the financial reform bill to a vote before any further amendments could have been added to strengthen the bill.  Notice how “the usual suspects” – Reid, Chuck Schumer and “Countrywide Chris” Dodd tried to close in on Cantwell and force her capitulation to the will of the kleptocracy:

There were some unusually Johnsonian moments of wrangling on the floor during the nearly hour-long vote.  Reid pressed his case hard on Snowe, the lone holdout vote present, with Bob Corker and Mitch McConnell at her side.  After finding Brown, he put his arm around him and shook his head, then found Cantwell seated alone at the opposite end of the floor.  He and New York’s Chuck Schumer encircled her, Reid leaning over her with his right arm on the back of her chair and Schumer leaning in with his left hand on her desk.  Cantwell stared straight ahead, not looking at the men even as she spoke.  Schumer called in Chris Dodd, who was unable to sway her.  Feingold hadn’t stuck around.  Cantwell, according to a spokesman, wanted a guarantee on an amendment that would fix a gaping hole in the derivatives section of the bill, which requires the trades to be cleared, but applies no penalty to trades that aren’t, making Blanche Lincoln’s reform package little better than a list of suggestions.

*   *   *

“I don’t think it’s a good idea to cut off good consumer amendments because of cloture,” said Cantwell on Tuesday night.

Senator Cantwell has proven herself worthy of our trust.  Her nomination as the 2012 Democratic Presidential candidate will revive the excitement and voter enthusiasm witnessed during the 2008 campaign.  On the other hand, if President Obama decides to seek a second term and wins the nomination, we will likely find a greater enthusiasm gap than the example of November 2.  As a result, by January of 2013 we could have a new administration in the White House, espousing what economist Nouriel Roubini describes as “the economic equivalent of creationism”.

Here’s to a bright future!



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Your Sleazy Government At Work

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May 31, 2010

Although the cartoon above appeared in my local paper, it came to my attention only because Barry Ritholtz posted it on his website, The Big Picture.  Congratulations to Jim Morin of The Miami Herald for creating one of those pictures that’s worth well over a thousand words.

Forget about all that oil floating in the Gulf of Mexico.  President Obama, Harry Reid and “Countrywide Chris” Dodd are too busy indulging in an orgy of self-congratulation over the Senate’s passage of a so-called “financial reform” bill (S. 3217) to be bothered with “the fishermen’s buzzkill”.  Meanwhile, many commentators are expressing their disappointment and disgust at the fact that the banking lobby has succeeded in making sure that the taxpayers will continue to pick up the tab when the banks go broke trading unregulated derivatives.

Matt Taibbi has written a fantastic essay for Rolling Stone, documenting the creepy battle over financial reform in the Senate.  The folks at Rolling Stone are sure getting their money’s worth out of Taibbi, after his landmark smackdown of Goldman Sachs and his revealing article exposing the way banks such as JP Morgan Chase fleeced Jefferson County, Alabama.  In his latest “must read” essay, Taibbi provides his readers with an understandable discussion of what is wrong with derivatives trading and Wall Street’s efforts to preserve the status quo:

Imagine a world where there’s no New York Stock Exchange, no NASDAQ or Nikkei:  no open exchanges at all, and all stocks traded in the dark.  Nobody has a clue how much a share of  IBM costs or how many of them are being traded.  In that world, the giant broker-dealer who trades thousands of IBM shares a day, and who knows which of its big clients are selling what and when, will have a hell of a lot more information than the day-trader schmuck sitting at home in his underwear, guessing at the prices of stocks via the Internet.

That world exists.  It’s called the over-the-counter derivatives market. Five of the country’s biggest banks, the Goldmans and JP Morgans and Morgan Stanleys, account for more than 90 percent of the market, where swaps of all shapes and sizes are traded more or less completely in the dark.  If you want to know how Greece finds itself bankrupted by swaps, or some town in Alabama overpaid by $93 million for deals to fund a sewer system, this is the explanation:  Nobody outside a handful of big swap dealers really has a clue about how much any of this shit costs, which means they can rip off their customers at will.

This insane outgrowth of  jungle capitalism has spun completely out of control since 2000, when Congress deregulated the derivatives market.  That market is now roughly 100 times bigger than the federal budget and 20 times larger than both the stock market and the GDP.  Unregulated derivative deals sank AIG, Lehman Brothers and Greece, and helped blow up the global economy in 2008.  Reining in derivatives is the key battle in the War for Finance Reform.  Without regulation of this critical market, Wall Street could explode another mushroom cloud of nuclear leverage and risk over the planet at any time.

At The New York Times, Gretchen Morgenson de-mystified how both the Senate’s “financial reform” bill and the bill passed by the House require standardized derivatives to be traded on an exchange or a “swap execution facility”.  Although these proposals create the illusion of reform – it’s important to keep in mind that old maxim about gambling:  “The house always wins.”  In this case, the ability to “front-run” the chumps gives the house the power to keep winning:

But the devil is always in the details — hence, two 1,500-page bills — and problems arise in how the proposals define what constitutes a swap execution facility, and who can own one.

Big banks want to create and own the venues where swaps are traded, because such control has many benefits.  First, it gives the dealers extremely valuable pretrade information from customers wishing to buy or sell these instruments.  Second, depending on how these facilities are designed, they may let dealers limit information about pricing when transactions take place — and if an array of prices is not readily available, customers can’t comparison-shop and the banks get to keep prices much higher than they might be on an exchange.

*   *   *

Finally, lawmakers who are charged with consolidating the two bills are talking about eliminating language that would bar derivatives facilities from receiving taxpayer bailouts if they get into trouble.  That means a federal rescue of an imperiled derivatives trading facility could occur.  (Again, think A.I.G.)

Surely, we beleaguered taxpayers do not need to backstop any more institutions than we do now.  According to Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond, Va., only 18 percent of the nation’s financial sector was covered by implied federal guarantees in 1999.  By the end of 2008, his bank’s research shows, the federal safety net covered 59 percent of the financial sector.

In a speech last week, Mr. Lacker said that he feared we were going to perpetuate the cycle of financial crises followed by taxpayer bailouts, in spite of Congressional reform efforts.

“Arguably, we will not break the cycle of regulation, bypass, crisis and rescue,”  Mr. Lacker said, “until we are willing to clarify the limits to government support, and incur the short-term costs of confirming those limits, in the interest of building a stronger and durable foundation for our financial system.  Measured against this gauge, my early assessment is that progress thus far has been negligible.”

Negligible progress, 3,000 pages notwithstanding.

When one considers what this legislation was intended to address, the dangers posed by failing to extinguish those systemic threats to the economy and what the Senate bill is being claimed to remedy  –  it’s actually just a huge, sleazy disgrace.  Matt Taibbi’s concluding words on the subject underscore the fact that not only do we still need real financial reform, we also need campaign finance reform:

Whatever the final outcome, the War for Finance Reform serves as a sweeping demonstration of how power in the Senate can be easily concentrated in the hands of just a few people.  Senators in the majority party – Brown, Kaufman, Merkley, even a committee chairman like Lincoln – took a back seat to Reid and Dodd, who tinkered with amendments on all four fronts of  the war just enough to keep many of them from having real teeth.  “They’re working to come up with a bill that Wall Street can live with, which by definition makes it a bad bill,” one Democratic aid eexplained in the final, frantic days of negotiation.

On the plus side, the bill will rein in some forms of predatory lending, and contains a historic decision to audit the Fed.  But the larger, more important stuff – breaking up banks that grow Too Big to Fail, requiring financial giants to pay upfront for their own bailouts, forcing the derivatives market into the light of day – probably won’t happen in any meaningful way.  The Senate is designed to function as a kind of ongoing negotiation between public sentiment and large financial interests, an endless tug of war in which senators maneuver to strike a delicate mathematical balance between votes and access to campaign cash.  The problem is that sometimes, when things get really broken, the very concept of a middle ground between real people and corrupt special interests becomes a grotesque fallacy.  In times like this, we need our politicians not to bridge a gap but to choose sides and fight.  In this historic battle over finance reform, when we had a once-in-a-generation chance to halt the worst abuses on Wall Street, many senators made the right choice.  In the end, however, the ones who mattered most picked wrong – and a war that once looked winnable will continue to drag on for years, creating more havoc and destroying more lives before it is over.

The sleazy antics by the Democrats who undermined financial reform (while pretending to advance it) will not be forgotten by the voters.  The real question is whether any independent candidates can step up to oppose the tools of Wall Street, relying on the nickels and dimes from “the little people” to wage a battle against the kleptocracy.




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Banking Lobby Tools In Senate Subvert Reform

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May 20. 2010

The financial pseudo-reform bill is being exposed as a farce.  Thanks to its tools in the Senate, the banking lobby is on the way toward defeating any significant financial reform.  Although Democrats in the Senate (and the President himself) have been posing as reformers who stand up to those “fat cat bankers”, their actions are speaking much louder than their words.  What follows is a list of the Senate Democrats who voted against both the Kaufman – Brown amendment (to prevent financial institutions from being “too big to fail”) as well as the amendment calling for more Federal Reserve transparency (sponsored by Republican David Vitter to comport with Congressman Ron Paul’s original “Audit the Fed” proposal – H.R. 1207 – which was replaced by the watered-down S. 3217 ):

Akaka (D-HI), Baucus (D-MT), Bayh (D-IN), Bennet (D-CO), Carper (D-DE), Conrad (D-ND), Dodd (D-CT), Feinstein (D-CA), Gillibrand (D-NY), Hagan (D-NC), Inouye (D-HI), Johnson (D-SD), Kerry (D-MA), Klobuchar (D-MN), Kohl (D-WI), Landrieu (D-LA), Lautenberg (D-NJ), Lieberman (ID-CT), McCaskill (D-MO), Menendez (D-NJ), Nelson (D-FL), Nelson (D-NE), Reed (D-RI), Schumer (D-NY), Shaheen (D-NH), Tester (D-MT), Udall (D-CO) and Mark Warner (D-VA).

I wasn’t surprised to see Senator Chuck Schumer on this list because, after all, Wall Street is located in his state.  But how about Senator Claire McCaskill?  Remember her performance at the April 27 hearing before the Senate Permanent Subcommittee on Investigations?   She really went after those banksters – didn’t she?  Why would she suddenly turn around and support the banks in opposing those two amendments?   I suppose the securities and investment industry is entitled to a little payback, after having given her campaign committee $265,750.

I was quite disappointed to see Senator Amy Klobuchar on that list.  Back on June 19, 2008, I included her in a piece entitled “Women to Watch”.  Now, almost exactly two years later, we are watching her serve as a tool for the securities and investment industry, which has given her campaign committee $224,325.  On the other hand, another female Senator whom I discussed in that same piece, Maria Cantwell of Washington, has been standing firm in opposing attempts to leave some giant loopholes in Senator Blanche Lincoln’s amendment concerning derivatives trading reform.  The Huffington Post described how Harry Reid attempted to use cloture to push the financial reform bill to a vote before any further amendments could have been added to strengthen the bill.  Notice how “the usual suspects” – Reid, Chuck Schumer and “Countrywide Chris” Dodd tried to close in on Cantwell and force her capitulation to the will of the kleptocracy:

There were some unusually Johnsonian moments of wrangling on the floor during the nearly hour-long vote.  Reid pressed his case hard on Snowe, the lone holdout vote present, with Bob Corker and Mitch McConnell at her side.  After finding Brown, he put his arm around him and shook his head, then found Cantwell seated alone at the opposite end of the floor.  He and New York’s Chuck Schumer encircled her, Reid leaning over her with his right arm on the back of her chair and Schumer leaning in with his left hand on her desk.  Cantwell stared straight ahead, not looking at the men even as she spoke.  Schumer called in Chris Dodd, who was unable to sway her.  Feingold hadn’t stuck around.  Cantwell, according to a spokesman, wanted a guarantee on an amendment that would fix a gaping hole in the derivatives section of the bill, which requires the trades to be cleared, but applies no penalty to trades that aren’t, making Blanche Lincoln’s reform package little better than a list of suggestions.

*   *   *

“I don’t think it’s a good idea to cut off good consumer amendments because of cloture,” said Cantwell on Tuesday night.

Other amendments offered by Democrats would ban banks from proprietary trading, cap ATM fees at 50 cents, impose new limits on the payday lending industry, prohibit naked credit default swaps and reinstate Glass-Steagall regulations that prohibit banks from owning investment firms.

“We need to eliminate the risk posed to our economy by ‘too big to fail’ financial firms and to reinstate the protective firewalls between Main Street banks and Wall Street firms,” said Feingold in a statement after the vote.  Feingold supported the amendment to reinstate Glass-Steagall, among others.

“Unfortunately, these key reforms are not included in the bill,” he said.  “The test for this legislation is a simple one — whether it will prevent another financial crisis.  As the bill stands, it fails that test.  Ending debate on the bill is finishing before the job is done.”

Russ Feingold’s criticisms of the bill were consistent with those voiced by economist Nouriel Roubini (often referred to as “Doctor Doom” because he was one of the few economists to anticipate the scale of the financial crisis).  Barbara Stcherbatcheff of CNBC began her report on Dr. Roubini’s May 18 speech with this statement:

Current efforts to reform financial regulation are “cosmetic” and won’t prevent another crisis, economist Nouriel Roubini told an audience on Tuesday at the London School of Economics.

The current mid-term primary battles have fueled a never-ending stream of commentary following the same narrative:  The wrath of the anti-incumbency movement shall be felt in Washington.  Nevertheless, Dylan Ratigan seems to be the only television commentator willing to include “opposition to financial reform” as a political liability for Congressional incumbents.  Yves Smith raised the issue on her Naked Capitalism website with an interesting essay focused on this theme:

Why have political commentators been hesitant to connect the dots between the “no incumbent left standing” movement and the lack of meaningful financial reform?

Her must-read analysis of the “head fakes” going on within the financial reform wrangling concludes with this thought:

So despite the theatrics in Washington, I recommend lowering your expectations greatly for the result of financial reform efforts.  There have been a few wins (for instance, the partial success of the Audit the Fed push), but other measures have for the most part been announced with fanfare and later blunted or excised.  Even though the firestorm of Goldman-related press stiffened the spines of some Senators and produced a late-in-process flurry of amendments, don’t let a blip distract you from the trend line, that as the legislative process proceeds apace, the banks will be able to achieve an outcome that leaves their dubious business models and most important, the rich pay to industry incumbents, largely intact.

As always, it’s up to the voting public with the short memory to unseat those tools of the banking lobby.  Our only alternative is to prepare for the next financial crisis.




The Longest Year

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September 14, 2009

As I write this, President Obama is preparing another fine-sounding, yet empty speech.  His subject this time is financial reform.  You may recall last week’s lofty address to the joint session of Congress, promoting his latest, somewhat-less-nebulous approach to healthcare reform.  He assured the audience that the so-called “public option” (wherein a government-created entity competes with private sector healthcare insurers) would be an integral part of the plan.  Within a week, two pieces of political toast from the Democratic Party (Nancy Pelosi and Harry Reid) set about undermining that aspect of the healthcare reform agenda.  This is just one reason why, on November 2, 2010, the people who elected Democrats in 2006 and 2008 will be taking a “voters’ holiday”, paving the way for Republican majorities in the Senate and House.  The moral lapse involving the public option was documented by David Sirota for Danny Schechter’s NewsDissector blog:

House Speaker Nancy Pelosi for the first time yesterday suggested she may be backing off her support of the public option – the government-run health plan that the private insurance industry is desperately trying to kill.  According to CNN, Pelosi and Senate Majority Leader Harry Reid “said they would support any provision that increases competition and accessibility for health insurance – whether or not it is the public option favored by most Democrats.”

This announcement came just hours before Steve Elmendorf, a registered UnitedHealth lobbyist and the head of UnitedHealth’s lobbying firm Elmendorf Strategies, blasted this email invitation throughout Washington, D.C. I just happened to get my hands on a copy of the invitation from a source – check it out:

From: Steve Elmendorf [mailto:steve@elmendorfstrategies.com]
Sent: Friday, September 11, 2009 8:31 AM
Subject: event with Speaker Pelosi at my home
You are cordially invited to a reception with

Speaker of the House
Nancy Pelosi

Thursday, September 24, 2009
6:30pm ~ 8:00pm

At the home of
Steve Elmendorf
2301 Connecticut Avenue, NW
Apt. 7B
Washington, D.C.

$5,000 PAC
$2,400 Individual

Again, Elmendorf is a registered lobbyist for UnitedHealth, and his firm’s website brags about its work for UnitedHealth on its website.

The sequencing here is important: Pelosi makes her announcement and then just hours later, the fundraising invitation goes out. Coincidental?  I’m guessing no – these things rarely ever are.

I wrote a book a few years ago called Hostile Takeover whose premise was that corruption and legalized bribery has become so widespread that nobody in Washington even tries to hide it. This is about as good an example of that truism as I’ve ever seen.

Whatever President Obama proposes to accomplish in terms of financial reform will surely be met with a similar fate.  Worse yet, his appointment of “Turbo” Tim Geithner as Treasury Secretary and his nomination of Ben Bernanke to a second term as Federal Reserve chairman are the best signals of the President’s true intention:  Preservation of the status quo, regardless of the cost to the taxpayers.

On this first anniversary of the demise of Lehman Brothers and the acknowledgment of the financial crisis, many commentators have noted the keen observations by Simon Johnson, a former chief economist at the International Monetary Fund, published in the May, 2009 issue of The Atlantic.  The theme of Johnson’s article, “The Quiet Coup” was that the current economic and financial crisis in the United States is “shockingly reminiscent” of those experienced in emerging markets (i.e. banana republics and proto-capitalist regimes).  The devil behind all the details in setting these systems upright after a financial crisis is the age-old concept of moral hazard or more simply:  sleaze.  In making the comparison of the United States to the emerging market countries he encountered at the IMF, Mr. Johnson began this way:

But there’s a deeper and more disturbing similarity:  elite business interests — financiers, in the case of the U.S. — played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse.  More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive.  The government seems helpless, or unwilling, to act against them.

Here are a few more passages from “The Quiet Coup” that our political leaders would be well-advised to consider:

Even leaving aside fairness to taxpayers, the government’s velvet-glove approach with the banks is deeply troubling, for one simple reason:  it is inadequate to change the behavior of a financial sector accustomed to doing business on its own terms, at a time when that behavior must change.  As an unnamed senior bank official said to The New York Times last fall, “It doesn’t matter how much Hank Paulson gives us, no one is going to lend a nickel until the economy turns.”  But there’s the rub:  the economy can’t recover until the banks are healthy and willing to lend.

*   *   *

The second problem the U.S. faces—the power of the oligarchy— is just as important as the immediate crisis of lending.  And the advice from the IMF on this front would again be simple:  break the oligarchy.

Oversize institutions disproportionately influence public policy; the major banks we have today draw much of their power from being too big to fail. Nationalization and re-privatization would not change that; while the replacement of the bank executives who got us into this crisis would be just and sensible, ultimately, the swapping-out of one set of powerful managers for another would change only the names of the oligarchs.

Ideally, big banks should be sold in medium-size pieces, divided regionally or by type of business.  Where this proves impractical—since we’ll want to sell the banks quickly— they could be sold whole, but with the requirement of being broken up within a short time.  Banks that remain in private hands should also be subject to size limitations.

Mr. Johnson pointed out the need to overhaul our current antitrust laws – not because any single institution controls so much market share as to influence prices – but because the failure of any one “to big to fail” bank could collapse the entire financial system.

One of my favorite reporters at The New York Times, Gretchen Morgenson, observed the anniversary of the Lehman Brothers failure with an essay that focused, in large part, on a recent paper by Edward Kane, a finance professor at Boston College, who created the expression: “zombie bank” in 1987.   This month, the Networks Financial Institute at Indiana State University published a policy brief by Dr. Kane on the subject of financial regulation.  In her article:  “But Who Is Watching Regulators?”, Ms. Morgenson summed up Professor Kane’s paper in the following way:

This ugly financial episode we’ve all had to live through makes clear, Mr. Kane says, that taxpayers must protect themselves against two things:  the corrupting influence of bureaucratic self-interest among regulators and the political clout wielded by the large institutions they are supposed to police. Finally, he argues, taxpayers must demand that the government publicize the costs of efforts taken to save the financial system from itself.

Although you may have seen widely-publicized news reports about an “overwhelming number” of academicians opposing the current efforts to require transparency from the Federal Reserve, Professor Kane provides a strong argument in favor of Fed transparency as well as scrutiny of the Treasury and the other government entities enmeshed the complex system of bailouts created within the past year.

At thirty-eight pages, his paper is quite a deep read.  Nevertheless, it’s packed with great criticism of the Federal Reserve and the Treasury.  We need more of this and when someone of Professor Kane’s stature provides it, there had better be people in high places taking it very seriously.  The following are just a few of the many astute observations made by Dr. Kane:

Agency elitism would be evidenced by the extent to which its leaders use crises to establish interpretations and precedents that cover up its mistakes, inflate its powers, expand its discretion, and extend its jurisdiction. According to this standard, Fed efforts to use the crisis as a platform for self-congratulation and for securing enlarged systemic-risk authority sidetracks rather than promotes effective reform.

*   *   *

A financial institution’s incentive to disobey, circumvent or lobby against a particular rule increases with the opportunity cost of compliance. This means that, to sort out the welfare consequences of any regulatory program, we must assess not only the costs and benefits of compliance, but include the costs and benefits of circumvention as well.

*   *   *

Realistically, every government-managed program of disaster relief is a strongly lobbied and nontransparent tax-transfer scheme for redistributing wealth and shifting risk away from the disaster’s immediate victims.  A financial crisis externalizes – in margin and other collateral calls, in depositor runs, and in bank and borrower pleas for government assistance – a political and economic struggle over when and how losses accumulated in corporate balance sheets and in the portfolios of insolvent financial institutions are to be unwound and reallocated across society.  At the same time, insolvent firms and government rescuers share a common interest in mischaracterizing the size and nature of the redistribution so as to minimize taxpayer unrest.

In principle, lenders and investors that voluntarily assume real and financial risks should reap the gains and bear the losses their risk exposures generate.  However, in crises, losers pressure government officials to rescue them and to induce other parties to share their pain.

The advocates of crony capitalism and their tools (our politicians and regulatory bureaucrats) need to know that we are on to them.  If the current administration is willing to facilitate more of the same, then it’s time for some new candidates to step forward.