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Banksters Live Up to the Nickname

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Matt Taibbi has done it again.  His latest article in Rolling Stone focused on the case of United States of America v. Carollo, Goldberg and Grimm, in which the Obama Justice Department actually prosecuted some financial crimes.  The three defendants worked for GE Capital (the finance arm of General Electric) and were involved in a bid-rigging conspiracy wherein the prices paid by banks to bond issuers were reduced (to the detriment of the local governments who issued those bonds).

The broker at the center of this case was a firm known as CDR.  CDR would be hired by a state or local government which was planning a bond issue.  Banks would then submit bids which are interest rates paid to the issuer for holding the money until payments became due to the various contractors involved in the project which was the subject of the particular bond.  The brokers would tip off a favored bank about the amounts of competing bids in return for a kickback based on the savings made by avoiding an unnecessarily high bid.  In the Carollo case, the GE Capital employees were supposed to be competing with other banks who would submit bids to CDR.  CDR would then inform the bidders on how to coordinate their bids so that the bid prices could be kept low and the various banks could agree among themselves as to which entity would receive a particular bond issue.  Four of the banks which “competed” against GE Capital in the bidding were UBS, Bank of America, JPMorgan Chase and Wells Fargo.  Those four banks paid a total of $673 million in restitution after agreeing to cooperate in the government’s case.

The brokers would also pay-off politicians who selected their firm to handle a bond issue.  Matt Taibbi gave one example of how former New Mexico Governor Bill Richardson received $100,000 in campaign contributions from CDR.  In return, CDR received $1.5 million in public money for services which were actually performed by another broker – at an additional cost.

Needless to say, the mainstream news media had no interest in covering this case.  Matt Taibbi quoted a remark made to the jury at the outset of the case by the trial judge, Harold Baer:  “It is unlikely, I think, that this will generate a lot of media publicity”.  Although the judge’s remark was intended to imply that the subject matter of the case was too technical and lacking in the “sex appeal” of the usual evening news subject, it also underscored the aversion of mainstream news outlets to expose the wrongdoing of their best sponsors:  the big banks.

Beyond that, this case exploded a myth – often used by the Justice Department as an excuse for not prosecuting financial crimes.  As Taibbi explained at the close of the piece:

There are some who think that the government is limited in how many corruption cases it can bring against Wall Street, because juries can’t understand the complexity of the financial schemes involved.  But in USA v. Carollo, that turned out not to be true.  “This verdict is proof of that,” says Hausfeld, the antitrust attorney.  “Juries can and do understand this material.”

One important lesson to be learned from the Carollo case is a simple fact that the mainstream news media would prefer to ignore:  This is but one tiny example of the manner in which business is conducted by the big banks.  As Matt Taibbi explained:

The men and women who run these corrupt banks and brokerages genuinely believe that their relentless lying and cheating, and even their anti-competitive cartel­style scheming, are all legitimate market processes that lead to legitimate price discovery.  In this lunatic worldview, the bid­rigging scheme was a system that created fair returns for everyone.

*   *   *

That, ultimately, is what this case was about.  Capitalism is a system for determining objective value.  What these Wall Street criminals have created is an opposite system of value by fiat. Prices are not objectively determined by collisions of price information from all over the market, but instead are collectively negotiated in secret, then dictated from above

*   *   *

Last year, the two leading recipients of public bond business, clocking in with more than $35 billion in bond issues apiece, were Chase and Bank of America – who combined had just paid more than $365 million in fines for their role in the mass bid rigging. Get busted for welfare fraud even once in America, and good luck getting so much as a food stamp ever again.  Get caught rigging interest rates in 50 states, and the government goes right on handing you billions of dollars in public contracts.

By now we are all familiar with the “revolving door” principle, wherein prosecutors eventually find themselves working for the law firms which represent the same financial institutions which those prosecutors should have dragged into court.  At the Securities and Exchange Commission, the same system is in place.  Worst of all is the fact that our politicians – who are responsible for enacting laws to protect the public from such criminal enterprises as what was exposed in the Carollo case – are in the business of lining their pockets with “campaign contributions” from those entities.  You may have seen Jon Stewart’s coverage of Jamie Dimon’s testimony before the Senate Banking Committee.  How dumb do the voters have to be to reelect those fawning sycophants?

Yet it happens  .  .  .  over and over again.  From the Great Depression to the Savings and Loan scandal to the financial crisis and now this bid-rigging scheme.  The culprits never do the “perp walk”.  Worse yet, they continue on with “business as usual” partly because the voting public is too brain-dead to care and partly because the mainstream news media avoid these stories.  Our political system is incapable of confronting this level of corruption because the politicians from both parties are bought and paid for by the banking cabal.  As  Paul Farrell of MarketWatch explained:

Seriously, folks, the elections are relevant.  Totally.  Oh, both sides pretend it matters.  But it no longer matters who’s president.  Or who’s in Congress.  Money runs America.  And when it comes to the public interest, money is not just greedy, but myopic, narcissistic and deaf.  Money from Wall Street bankers, Corporate CEOs, the Super Rich and their army of 261,000 highly paid mercenary lobbyists.  They hedge, place bets on both sides.  Democracy is dead.

Why would anyone expect America to solve any of its most pressing problems when the officials responsible for addressing those issues have been compromised by the villains who caused those situations?


 

Get Ready for the Next Financial Crisis

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It was almost one year ago when Bloomberg News reported on these remarks by Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group:

“There is definitely going to be another financial crisis around the corner because we haven’t solved any of the things that caused the previous crisis,” Mobius said at the Foreign Correspondents’ Club of Japan inTokyotoday in response to a question about price swings. “Are the derivatives regulated?  No.  Are you still getting growth in derivatives?  Yes.”

I have frequently complained about the failed attempt at financial reform, known as the Dodd-Frank Act.  Two years ago, I wrote a piece entitled, “Financial Reform Bill Exposed As Hoax” wherein I expressed my outrage that the financial reform effort had become a charade.  The final product resulting from all of the grandstanding and backroom deals – the Dodd–Frank Act – had become nothing more than a hoax on the American public.  My essay included the reactions of five commentators, who were similarly dismayed.  I concluded the posting with this remark:

The bill that is supposed to save us from another financial crisis does nothing to accomplish that objective.  Once this 2,000-page farce is signed into law, watch for the reactions.  It will be interesting to sort out the clear-thinkers from the Kool-Aid drinkers.

During the past few days, there has been a chorus of commentary calling for a renewed effort toward financial reform.  We have seen a torrent of reports on the misadventures of The London Whale at JP Morgan Chase, whose outrageous derivatives wager has cost the firm uncounted billions.  By the time this deal is unwound, the originally-reported loss of $2 billion will likely be dwarfed.

Former Secretary of Labor, Robert Reich, has made a hobby of writing blog postings about “what President Obama needs to do”.  Of course, President Obama never follows Professor Reich’s recommendations, which might explain why Mitt Romney has been overtaking Obama in the opinion polls.  On May 16, Professor Reich was downright critical of the President, comparing him to the dog in a short story by Sir Arthur Conan Doyle involving Sherlock Holmes, Silver Blaze.  The President’s feeble remarks about JPMorgan’s latest derivatives fiasco overlooked the responsibility of Jamie Dimon – obviously annoying Professor Reich, who shared this reaction:

Not a word about Jamie Dimon’s tireless campaign to eviscerate the Dodd-Frank financial reform bill; his loud and repeated charge that the Street’s near meltdown in 2008 didn’t warrant more financial regulation; his leadership of Wall Street’s brazen lobbying campaign to delay the Volcker Rule under Dodd-Frank, which is still delayed; and his efforts to make that rule meaningless by widening a loophole allowing banks to use commercial deposits to “hedge” (that is, make offsetting bets) their derivative trades.

Nor any mention Dimon’s outrageous flaunting of Dodd-Frank and of the Volcker Rule by setting up a special division in the bank to make huge (and hugely profitable, when the bets paid off) derivative trades disguised as hedges.

Nor Dimon’s dual role as both chairman and CEO of JPMorgan (frowned on my experts in corporate governance) for which he collected a whopping $23 million this year, and $23 million in 2010 and 2011 in addition to a $17 million bonus.

Even if Obama didn’t want to criticize Dimon, at the very least he could have used the occasion to come out squarely in favor of tougher financial regulation.  It’s the perfect time for him to call for resurrecting the Glass-Steagall Act, of which the Volcker Rule – with its giant loophole for hedges – is a pale and inadequate substitute.

And for breaking up the biggest banks and setting a cap on their size, as the Dallas branch of the Federal Reserve recommended several weeks ago.

This was Professor Reich’s second consecutive reference within a week to The Dallas Fed’s Annual Report, which featured an essay by Harvey Rosenblum, the head of the Dallas Fed’s Research Department and the former president of the National Association for Business Economics.  Rosenblum’s essay provided an historical analysis of the events leading up to the 2008 financial crisis and the regulatory efforts which resulted from that catastrophe – particularly the Dodd-Frank Act.  Beyond that, Rosenblum emphasized why those “too-big-to-fail” (TBTF) banks have actually grown since the enactment of Dodd-Frank:

The TBTF survivors of the financial crisis look a lot like they did in 2008.  They maintain corporate cultures based on the short-term incentives of fees and bonuses derived from increased oligopoly power.  They remain difficult to control because they have the lawyers and the money to resist the pressures of federal regulation.  Just as important, their significant presence in dozens of states confers enormous political clout in their quest to refocus banking statutes and regulatory enforcement to their advantage.

Last year, former Kansas City Fed-head, Thomas Hoenig discussed the problems created by the TBTFs, which he characterized as “systemically important financial institutions” – or “SIFIs”:

…  I suggest that the problem with SIFIs is they are fundamentally inconsistent with capitalism.  They are inherently destabilizing to global markets and detrimental to world growth.  So long as the concept of a SIFI exists, and there are institutions so powerful and considered so important that they require special support and different rules, the future of capitalism is at risk and our market economy is in peril.

Although the huge derivatives loss by JPMorgan Chase has motivated a number of commentators to issue warnings about the risk of another financial crisis, there had been plenty of admonitions emphasizing the risks of the next financial meltdown, which were published long before the London Whale was beached.  Back in January, G. Timothy Haight wrote an inspiring piece for the pro-Republican Orange County Register, criticizing the failure of our government to address the systemic risk which brought about the catastrophe of 2008:

In response to widespread criticism associated with the financial collapse, Congress has enacted a number of reforms aimed at curbing abuses at financial institutions.  Legislation, such as the Dodd-Frank and Consumer Protection Act, was trumpeted as ensuring that another financial meltdown would be avoided.  Such reactionary regulation was certain to pacify U.S. taxpayers.

Unfortunately, legislation enacted does not solve the fundamental problem.  It simply provides cover for those who were asleep at the wheel, while ignoring the underlying cause of the crisis.

More than three years after the calamity, have we solved the dilemma we found ourselves in late 2008?  Can we rest assured that a future bailout will not occur?  Are financial institutions no longer “too big to fail?”

Regrettably, the answer, in each case, is a resounding no.

Last month, Michael T. Snyder of The Economic Collapse blog wrote an essay for the Seeking Alpha website, enumerating the 22 Red Flags Indicating Serious Doom Is Coming for Global Financial Markets.  Of particular interest was red flag #22:

The 9 largest U.S. banks have a total of 228.72 trillion dollars of exposure to derivatives.  That is approximately 3 times the size of the entire global economy.  It is a financial bubble so immense in size that it is nearly impossible to fully comprehend how large it is.

The multi-billion dollar derivatives loss by JPMorgan Chase demonstrates that the sham “financial reform” cannot prevent another financial crisis.  The banks assume that there will be more taxpayer-funded bailouts available, when the inevitable train wreck occurs.  The Federal Reserve will be expected to provide another round of quantitative easing to keep everyone happy.  As a result, nothing will be done to strengthen financial reform as a result of this episode.  The megabanks were able to survive the storm of indignation in the wake of the 2008 crisis and they will be able ride-out the current wave of public outrage.

As Election Day approaches, Team Obama is afraid that the voters will wake up to the fact that the administration itself  is to blame for sabotaging financial reform.  They are hoping that the public won’t be reminded that two years ago, Simon Johnson (former chief economist of the IMF) wrote an essay entitled, “Creating the Next Crisis” in which he provided this warning:

On the critical dimension of excessive bank size and what it implies for systemic risk, there was a concerted effort by Senators Ted Kaufman and Sherrod Brown to impose a size cap on the largest banks – very much in accordance with the spirit of the original “Volcker Rule” proposed in January 2010 by Obama himself.

In an almost unbelievable volte face, for reasons that remain somewhat mysterious, Obama’s administration itself shot down this approach.  “If enacted, Brown-Kaufman would have broken up the six biggest banks inAmerica,” a senior Treasury official said.  “If we’d been for it, it probably would have happened.  But we weren’t, so it didn’t.”

Whether the world economy grows now at 4% or 5% matters, but it does not much affect our medium-term prospects. The US financial sector received an unconditional bailout – and is not now facing any kind of meaningful re-regulation.  We are setting ourselves up, without question, for another boom based on excessive and reckless risk-taking at the heart of the world’s financial system.  This can end only one way:  badly.

The public can forget a good deal of information in two years.  They need to be reminded about those early reactions to the Obama administration’s subversion of financial reform.  At her Naked Capitalism website, Yves Smith served up some negative opinions concerning the bill, along with her own cutting commentary in June of 2010:

I want the word “reform” back.  Between health care “reform” and financial services “reform,” Obama, his operatives, and media cheerleaders are trying to depict both initiatives as being far more salutary and far-reaching than they are.  This abuse of language is yet another case of the Obama Administration using branding to cover up substantive shortcomings.  In the short run it might fool quite a few people, just as BP’s efforts to position itself as an environmentally responsible company did.

*   *   *

So what does the bill accomplish?  It inconveniences banks around the margin while failing to reduce the odds of a recurrence of a major financial crisis.

On May 17, Noam Scheiber explained why the White House is ”sweating” the JPMorgan controversy:

In particular, the transaction appears to have been a type of proprietary trade – which is to say, a trade that a bank undertakes to make money for itself, not its clients.  And these trades were supposed to have been outlawed by the “Volcker Rule” provision of Obama’s financial reform law, at least at federally-backed banks like JP Morgan.  The administration is naturally worried that, having touted the law as an end to the financial shenanigans that brought us the 2008 crisis, it will look feckless instead.

*   *   *

But it turns out that there’s an additional twist here.  The concern for the White House isn’t just that the law could look weak, making it a less than compelling selling point for Obama’s re-election campaign.  It’s that the administration could be blamed for the weakness.  It’s one thing if you fought for a tough law and didn’t entirely succeed.  It’s quite another thing if it starts to look like you undermined the law behind the scenes.  In that case, the administration could look duplicitous, not merely ineffectual.  And that’s the narrative you see the administration trying to preempt   .   .   .

When the next financial crisis begins, be sure to credit President Obama as the Facilitator-In-Chief.


 

Dumping On The Dimon Dog

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The Dimon Dog has been eating crow for the past few days, following a very public humiliation.  The outspoken critic of the Dodd-Frank Wall Street Reform and Consumer Protection Act found himself explaining a $2 billion loss sustained by his firm, JPMorgan Chase, as a result of involvement in the very type of activity the Act’s “Volcker Rule” was intended to prevent.  Financial industry lobbyists have been busy, frustrating regulatory attempts to implement Dodd-Frank’s provisions which call for stricter regulation of securities trading and transactions involving derivatives.  Appropriately enough, it was an irresponsible derivatives trading strategy which put Jamie Dimon on the hot seat.  The widespread criticism resulting from this episode was best described by Lizzie O’Leary (@lizzieohreally) with a single-word tweet:  Dimonfreude.

The incident in question involved a risky bet made by a London-based trader named Bruno Iksil – nicknamed “The London Whale” – who works in JP Morgan’s Chief Investment Office, or CIO.  An easy-to-understand explanation of this trade was provided by Heidi Moore, who emphasized that Iksil’s risky position was no secret before it went south:

Everyone knew.  Thousands of people.  Iksil’s bets have been well known ever since Bloomberg’s Stephanie Ruhle broke the news in early April.  A trader at rival bank, Bank of America Merrill Lynch wrote to clients back then, saying that Iksil’s huge bet was attracting attention and hedge funds believed him to be too optimistic and were betting against him, waiting for Iksil to crash.  The Wall Street Journal reported that the Merrill Lynch trader wrote, “Fast money has smelt blood.

When the media, analysts and other traders raised concerns on JP Morgan’s earnings conference call last month, JP Morgan CEO Jamie Dimon dismissed their worries as “a tempest in a teapot.”

Dimon’s smug attitude about the trade (prior to its demise) was consistent with the hubris he exhibited while maligning Dodd-Frank, thus explaining why so many commentators took delight in Dimon’s embarrassment.  On May 11, Kevin Roose of DealBook offered a preliminary round-up of the criticism resulting from this episode:

In a research note, a RBC analyst, Gerard Cassidy, called the incident a “hit to credibility” at the bank, while the Huffington Post’s Mark Gongloff said, “Funny thing:  Some of the constraints of the very Dodd-Frank financial reform act Dimon hates could have prevented it.”  Slate’s Matthew Yglesias pointed back to statements Mr. Dimon made in opposition to the Volcker Rule and other proposed regulations, and quipped, “Indeed, if only JPMorgan were allowed to run a thinner capital buffer and riskier trades.  Then we’d all feel safe.”

Janet Tavakoli pointed out that this event is simply the most recent chapter in Dimon’s history of allowing the firm to follow risky trading strategies:

At issue is corporate governance at JPMorgan and the ability of its CEO, Jamie Dimon, to manage its risk.  It’s reasonable to ask whether any CEO can manage the risks of a bank this size, but the questions surrounding Jamie Dimon’s management are more targeted than that.  The problem Jamie Dimon has is that JPMorgan lost control in multiple areas.  Each time a new problem becomes public, it is revealed that management controls weren’t adequate in the first place.

*   *   *

Jamie Dimon’s problem as Chairman and CEO–his dual role raises further questions about JPMorgan’s corporate governance—is that just two years ago derivatives trades were out of control in his commodities division.  JPMorgan’s short coal position was over sized relative to the global coal market.  JPMorgan put this position on while the U.S. is at war.  It was not a customer trade; the purpose was to make money for JPMorgan.  Although coal isn’t a strategic commodity, one should question why the bank was so reckless.

After trading hours on Thursday of this week, Jamie Dimon held a conference call about $2 billion in mark-to-market losses in credit derivatives (so far) generated by the Chief Investment Office, the bank’s “investment” book.  He admitted:

“In hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed, and poorly monitored.”

At The New York Times, Gretchen Morgenson focused on the karmic significance of Dimon’s making such an admission after having belittled Paul Volcker and Dallas FedHead Richard Fisher at a party in Dallas last month:

During the party, Mr. Dimon took questions from the crowd, according to an attendee who spoke on condition of anonymity for fear of alienating the bank. One guest asked about the problem of too-big-to-fail banks and the arguments made by Mr. Volcker and Mr. Fisher.

Mr. Dimon responded that he had just two words to describe them:  “infantile” and “nonfactual.”  He went on to lambaste Mr. Fisher further, according to the attendee.  Some in the room were taken aback by the comments.

*   *   *

The hypocrisy is that our nation’s big financial institutions, protected by implied taxpayer guarantees, oppose regulation on the grounds that it would increase their costs and reduce their profit.  Such rules are unfair, they contend.  But in discussing fairness, they never talk about how fair it is to require taxpayers to bail out reckless institutions when their trades imperil them.  That’s a question for another day.

AND the fact that large institutions arguing against transparency in derivatives trading won’t acknowledge that such rules could also save them from themselves is quite the paradox.

Dimon’s rant at the Dallas party was triggered by a fantastic document released by the Federal Reserve Bank of Dallas on March 21:  its 2011 Annual Report, featuring an essay entitled, “Choosing the Road to Prosperity – Why We Must End Too Big to Fail – Now”.  The essay was written by Harvey Rosenblum, the head of the Dallas Fed’s Research Department and the former president of the National Association for Business Economics.  Rosenblum’s essay provided an historical analysis of the events leading up to the 2008 financial crisis and the regulatory efforts which resulted from that catastrophe – particularly the Dodd-Frank Act.

With his own criticism of Dimon’s attitude, Robert Reich invoked the position asserted by the Dallas Fed:

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

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

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

*   *   *

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

At Salon, Andrew Leonard focused on the embarrassment this episode could bring to Mitt Romney:

Because if anyone is going to come out of this mess looking even stupider than Jamie Dimon, it’s got to be Mitt Romney – the presidential candidate actively campaigning on a pledge to repeal Dodd-Frank.

Perhaps Mr. Romney might want to consider strapping The Dimon Dog to the roof of his car for a little ride to Canada.


 

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Goldman Sachs Remains in the Spotlight

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Goldman Sachs has become a magnet for bad publicity.  Last week, I wrote a piece entitled, “Why Bad Publicity Never Hurts Goldman Sachs”.  On March 14, Greg Smith (a Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa) summed-up his disgust with the firm’s devolution by writing “Why I Am Leaving Goldman Sachs” for The New York Times.  Among the most-frequently quoted reasons for Smith’s departure was this statement:

It makes me ill how callously people talk about ripping their clients off.  Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail.

In the wake of Greg Smith’s very public resignation from Goldman Sachs, many commentators have begun to speculate that Goldman’s bad behavior may have passed a tipping point.  The potential consequences have become a popular subject for speculation.  The end of Lloyd Blankfein’s reign as CEO has been the most frequently-expressed prediction.  Peter Cohan of Forbes raised the possibility that Goldman’s clients might just decide to take their business elsewhere:

Until a wave of talented people leave Goldman and go work for some other bank, many clients will stick with Goldman and hope for the best.  That’s why the biggest threat to Goldman’s survival is that Smith’s departure – and the reasons he publicized so nicely in his Times op-ed – leads to a wider talent exodus.

After all, that loss of talent could erode Goldman’s ability to hold onto clients. And that could give Goldman clients a better alternative.  So when Goldman’s board replaces Blankfein, it should appoint a leader who will restore the luster to Goldman’s traditional values.

Goldman’s errant fiduciary behavior became a popular topic in July of 2009, when the Zero Hedge website focused on Goldman’s involvement in high-frequency trading, which raised suspicions that the firm was “front-running” its own customers.   It was claimed that when a Goldman customer would send out a limit order, Goldman’s proprietary trading desk would buy the stock first, then resell it to the client at the high limit of the order.  (Of course, Goldman denied front-running its clients.)  Zero Hedge brought our attention to Goldman’s “GS360” portal.  GS360 included a disclaimer which could have been exploited to support an argument that the customer consented to Goldman’s front-running of the customer’s orders.  One week later, Matt Taibbi wrote his groundbreaking, tour de force for Rolling Stone about Goldman’s involvement in the events which led to the financial crisis.  From that point onward, the “vampire squid” and its predatory business model became popular subjects for advocates of financial reform.

Despite all of the hand-wringing about Goldman’s controversial antics – especially after the April 2010 Senate Permanent Subcommittee on Investigations hearing, wherein Goldman’s “Fab Four” testified about selling their customers the Abacus CDO and that “shitty” Timberwolf deal, no effective remedial actions for cleaning-up Wall Street were on the horizon.  The Dodd-Frank financial “reform” legislation had become a worthless farce.

Exactly two years ago, publication of the report by bankruptcy examiner Anton Valukas, pinpointing causes of the Lehman Brothers collapse, created shockwaves which were limited to the blogosphere.  Unfortunately, the mainstream media were not giving that story very much traction.  On March 15 of 2010, the Columbia Journalism Review published an essay by Ryan Chittum, decrying the lack of mainstream media attention given to the Lehman scandal.  This shining example of Wall Street malefaction should have been an influential factor toward making the financial reform bill significantly more effective than the worthless sham it became.

Greg Smith’s resignation from Goldman Sachs could become the game-changing event, motivating Wall Street’s investment banks to finally change their ways.  Matt Taibbi seems to think so:

This always had to be the endgame for reforming Wall Street.  It was never going to happen by having the government sweep through and impose a wave of draconian new regulations, although a more vigorous enforcement of existing laws might have helped.  Nor could the Occupy protests or even a monster wave of civil lawsuits hope to really change the screw-your-clients, screw-everybody, grab-what-you-can culture of the modern financial services industry.

Real change was always going to have to come from within Wall Street itself, and the surest way for that to happen is for the managers of pension funds and union retirement funds and other institutional investors to see that the Goldmans of the world aren’t just arrogant sleazebags, they’re also not terribly good at managing your money.

*   *   *

These guys have lost the fear of going out of business, because they can’t go out of business.  After all, our government won’t let them.  Beyond the bailouts, they’re all subsisting daily on massive loads of free cash from the Fed.  No one can touch them, and sadly, most of the biggest institutional clients see getting clipped for a few points by Goldman or Chase as the cost of doing business.

The only way to break this cycle, since our government doesn’t seem to want to end its habit of financially supporting fraud-committing, repeat-offending, client-fleecing banks, is for these big “muppet” clients to start taking their business elsewhere.

In the mean time, the rest of us will be keeping our fingers crossed.


 

Psychopaths Caused The Financial Crisis

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Two months ago, Barry Ritholtz wrote a piece for The Washington Post in rebuttal to New York Mayor Michael Bloomberg’s parroting of what has become The Big Lie of our time.  In response to a question about Occupy Wall Street, Mayor Bloomberg said this:

“It was not the banks that created the mortgage crisis. It was, plain and simple, Congress who forced everybody to go and give mortgages to people who were on the cusp.”

Ritholtz then proceeded to list and discuss the true causes of the financial crisis.  Among those causes were Alan Greenspan’s Federal Reserve monetary policy – wherein interest rates were reduced to 1 percent; the deregulation of derivatives trading by way of the Commodity Futures Modernization Act; the Securities and Exchange Commission’s “Bear Stearns exemption” – allowing Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns to boost their leverage as high as 40-to-1; as well as the “bundling” of sub-prime mortgages with higher-quality mortgages into sleazy “investment” products known as collateralized debt obligations (CDOs).

After The Washington Post published the Ritholtz piece, a good deal of supportive commentary emerged – as observed by Ritholtz himself:

Since then, both Bloomberg.com and Reuters each have picked up the Big Lie theme. (Columbia Journalism Review as well).  In today’s NYT, Joe Nocera does too, once again calling out those who are pushing the false narrative for political or ideological reasons in a column simply called “The Big Lie“.

Purveyors of The Big Lie are also big on advancing the claim that the “too big to fail” beneficiaries of the TARP bailout repaid the money they were loaned, at a profit to the taxpayers.  Immediately after her arrival at CNN, former Goldman Sachs employee, Erin Burnett made a point of interviewing a young, Occupy Wall Street protester, asking him if he was aware that the government actually made a profit on the TARP.  Unfortunately, the fiancée of Citigroup executive David Rubulotta didn’t direct her question to Steve Randy Waldman – who debunked that propaganda at his Interfluidity website:

Substantially all of the TARP funds advanced to banks have been paid back, with interest and sometimes even with a profit from sales of warrants.  Most of the (much larger) extraordinary liquidity facilities advanced by the Fed have also been wound down without credit losses.  So there really was no bailout, right?  The banks took loans and paid them back.

Bullshit.

*   *   *

During the run-up to the financial crisis, bank managers, shareholders, and creditors paid themselves hundreds of billions of dollars in dividends, buybacks, bonuses and interest.  Had the state intervened less generously, a substantial fraction of those payouts might have been recovered (albeit from different cohorts of stakeholders, as many recipients of past payouts had already taken their money and ran).  The market cap of the 19 TARP banks that received more than a billion dollars each in assistance is about 550B dollars today (even after several of those banks’ share prices have collapsed over fears of Eurocontagion).  The uninsured debt of those banks is and was a large multiple of their market caps.  Had the government resolved the weakest of the banks, writing off equity and haircutting creditors, had it insisted on retaining upside commensurate with the fraction of risk it was bearing on behalf of stronger banks, the taxpayer savings would have run from hundreds of billions to a trillion dollars.  We can get into all kinds of arguments over what would have been practical and legal. Regardless of whether the government could or could not have abstained from making the transfers that it made, it did make huge transfers.  Bank stakeholders retain hundreds of billions of dollars against taxpayer losses of the same, relative to any scenario in which the government received remotely adequate compensation first for the risk it assumed, and then for quietly moving Heaven and Earth to obscure and (partially) neutralize that risk.

The banks were bailed out.  Big time.

Another overlooked cause of the financial crisis was the fact that there were too many psychopaths managing the most privileged Wall Street institutions.  Not only had the lunatics taken over the asylum – they had taken control of the world’s largest, government-backed casino, as well.  William D. Cohan of Bloomberg News gave us a peek at the recent work of Clive R. Boddy:

It took a relatively obscure former British academic to propagate a theory of the financial crisis that would confirm what many people suspected all along:  The “corporate psychopaths” at the helm of our financial institutions are to blame.

Clive R. Boddy, most recently a professor at the Nottingham Business School at Nottingham Trent University, says psychopaths are the 1 percent of “people who, perhaps due to physical factors to do with abnormal brain connectivity and chemistry” lack a “conscience, have few emotions and display an inability to have any feelings, sympathy or empathy for other people.”

As a result, Boddy argues in a recent issue of the Journal of Business Ethics, such people are “extraordinarily cold, much more calculating and ruthless towards others than most people are and therefore a menace to the companies they work for and to society.”

Professor Boddy wrote a book on the subject – entitled, Corporate Psychopaths.  The book’s publisher, Macmillan, provided this description of the $90 opus:

Psychopaths are little understood outside of the criminal image.  However, as the recent global financial crisis highlighted, the behavior of a small group of managers can potentially bring down the entire western system of business.  This book investigates who they are, why they do what they do and what the consequences of their presence are.

Matt Taibbi provided a less-expensive explanation of this mindset in a recent article for Rolling Stone:

Most of us 99-percenters couldn’t even let our dogs leave a dump on the sidewalk without feeling ashamed before our neighbors.  It’s called having a conscience: even though there are plenty of things most of us could get away with doing, we just don’t do them, because, well, we live here.  Most of us wouldn’t take a million dollars to swindle the local school system, or put our next door neighbors out on the street with a robosigned foreclosure, or steal the life’s savings of some old pensioner down the block by selling him a bunch of worthless securities.

But our Too-Big-To-Fail banks unhesitatingly take billions in bailout money and then turn right around and finance the export of jobs to new locations in China and India.  They defraud the pension funds of state workers into buying billions of their crap mortgage assets.  They take zero-interest loans from the state and then lend that same money back to us at interest.  Or, like Chase, they bribe the politicians serving countries and states and cities and even school boards to take on crippling debt deals.

Do you think that Mayor Bloomberg learned his lesson  .  .  .  that spreading pro-bankster propaganda can provoke the infusion of an overwhelming dose of truth into the mainstream news?   Nawwww  .  .  .


 

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Obama Backpedals To Save His Presidency

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President Obama’s demotion of his Chief of Staff, Bill Daley, has drawn quite a bit of attention – despite efforts by the White House to downplay the significance of that event.  The demotion of Daley is significant because it indicates that Obama is now trying to back away from his original strategy of helping Wall Street at the expense of Main Street.  This move appears to be an attempt by Obama to re-cast himself as a populist, in response to the widespread success of the Occupy Wall Street movement.

In September of 2010, I wrote a piece entitled, “Where Obama Went Wrong”.  Despite the subsequent spin by right-wing pundits, to the effect that voters had been enamored with the Tea Party’s emphasis on smaller government, the true reasons for the mid-term disaster for the Democrats had become obvious:

During the past week, we’ve been bombarded with explanations from across the political spectrum, concerning how President Obama has gone from wildly-popular cult hero to radioactive force on the 2010 campaign trail.  For many Democrats facing re-election bids in November, the presence of Obama at one of their campaign rallies could be reminiscent of the appearance of William Macy’s character from the movie, The Cooler.  Wikipedia’s discussion of the film provided this definition:

In gambling parlance, a “cooler” is an unlucky individual whose presence at the tables results in a streak of bad luck for the other players.

*   *   *

The American people are hurting because their President sold them out immediately after he was elected.  When faced with the choice of bailing out the zombie banks or putting those banks through temporary receivership (the “Swedish approach” – wherein the bank shareholders and bondholders would take financial “haircuts”) Obama chose to bail out the banks at taxpayer expense.  So here we are  . . .  in a Japanese-style “lost decade”.  In case you don’t remember the debate from early 2009 – peruse this February 10, 2009 posting from the Calculated Risk website.  After reading that, try not to cry after looking at this recent piece by Barry Ritholtz of The Big Picture entitled, “We Should Have Gone Swedish  . . .”

Back in December of 2009, Bill Daley – a minion of The Dimon Dog at JPMorgan Chase – wrote an op-ed piece for The Washington Post, which resonated with Wall Street’s tool in the White House.  Daley claimed that Obama and other Democrats were elected to office in 2008 because voters had embraced some pseudo-centrist ideas, which Daley referenced in these terms:

These independents and Republicans supported Democrats based on a message indicating that the party would be a true Big Tent — that we would welcome a diversity of views even on tough issues such as abortion, gun rights and the role of government in the economy.

*   *   *

All that is required for the Democratic Party to recover its political footing is to acknowledge that the agenda of the party’s most liberal supporters has not won the support of a majority of Americans — and, based on that recognition, to steer a more moderate course on the key issues of the day, from health care to the economy to the environment to Afghanistan.

Unfortunately, Obama was pre-disposed to accept this rationale, keeping his policy decisions on a trajectory which has proven as damaging to his own political future as it has been to the future of the American middle class.

On November 8, Jonathan Chait wrote a piece for New York magazine’s Daily Intel blog, wherein he explained that the demotion of Bill Daley revealed a “course correction” by Obama, in order to a pursue a strategy “in line with the realities of public opinion”.  Jonathan Chait explained how the ideas espoused by Daley in his 2009 Washington Post editorial, had been a blueprint for failure:

Daley, pursuing his theory, heavily courted business leaders.  He made long-term deficit reduction a top priority, and spent hours with Republican leaders, meeting them three-quarters of the way in hopes of securing a deal that would demonstrate his centrism and bipartisanship.  The effort failed completely.

The effort failed because Daley’s analysis – which is also the analysis of David Brooks and Michael Bloomberg – was fatally incorrect.  Americans were not itching for Obama to make peace with corporate America.  Americans are in an angry, populist mood – distrustful of government, but even more distrustful of business.  In the most recent NBC/The Wall Street Journal poll, 60 percent of Americans strongly agreed with the following statement:

The current economic structure of the country is out of balance and favors a very small proportion of the rich over the rest of the country.  America needs to reduce the power of major banks and corporations and demand greater accountability and transparency.  The government should not provide financial aid to corporations and should not provide tax breaks to the rich.

At the website of economist Brad DeLong, a number of comments were posted in response to Jonathan Chait’s essay.  One can only hope that our President has the same, clear understanding of this situation as do the individuals who posted these comments:

Full Employment Hawk said:

.   .   .   The defeat of the Democrats was due to the fact that the Obama administration did too little, not because it did too much.

Daley’s view that it was because the moderately progressive policies of the Obama administration were too far left for the center was totally wrong.  And listening to Daley’s advice to further shift from job creation to deficit reduction was a major blunder that reinforced the blunder of the first two years of dropping the ball on making the economy grow fast enough for the unemployment rate to be coming down significantly by the time of the Fall election.

In reply to the comment posted by Full Employment Hawk, a reader, identified as “urban legend” said this:

Obama should have been making the point over and over and over and over that getting more money into the hands of more Americans — principally right now by creating jobs — is the most pro-business stance you can take.  Continuing to let the 1% dictate everything in their favor is the most anti-business thing you can do.  We are the ones who want demand to rise for the goods and services of American business.  Right-wingers don’t care much about that.  What they do care about is maintaining their theology against all the evidence of its massive failure.

At Politico, Jonathan Chait’s essay provoked the following comment from Ben Smith:

It is entirely possible that no staff shift, and no ideological shift, can save Obama from a bad economy.  You don’t get to run controlled experiments in politics.

But it does seem worth noting that this argument pre-dates Daley: It’s the substance of the 2008 debate between Hillary Clinton and Obama, with Clinton portraying Obama as naive in his dream of bipartisan unity, and the Republicans as an implacable foe.  It’s the Clinton view, the ’90s view, that has prevailed here.

Indeed, it would be nice for all of us if Obama could get a “Mulligan” for his mishandling of the economic crisis.  Unfortunately, this ain’t golf.


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Too Smart For The Democrats

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This was bound to happen.  Now that the Occupy Wall Street protest has become a big deal, the Democrats are trying to claim it as their own franchise.  Fortunately, the protesters aren’t interested.  My October 6 posting focused on the hypocrisy of the pseudo-populist Democrats, who – as of that time – had failed to express any support for this new movement:

The Occupy Wall Street protest has exposed the politicians – who have always claimed to be populists – for what they really are:  tools of the plutocracy.  Conspicuously absent from the Wall Street occupation have been nearly all Democrats – despite their party’s efforts to portray itself as the champion of Main Street in its battle against the tyranny of the megabanks.  As has always been the case, the Democrats won’t really do anything that could disrupt the flow of bribes campaign contributions they receive from our nation’s financial elites.

The party-crashing Democrats are now attempting to advance their status from interlopers to hosts.  At the Occupy Wall Street website, this question was posted with an invitation for comments:

“Are you cool with the Democrats taking ownership of OWS?”

Not surprisingly, the responses were overwhelmingly negative.  Here are a few examples:

WorkingClassAntiHero (Manchester, NH):

Anyone thinking about this thing in the old terms of left, right, Democrat, Republican, etc…is either not paying attention or isn’t really involved.

IndpendentTX:

There needs to be more visible demonstration that this is not a Democrat movement but a movement by a non-partisan group against the corporate political machine.  More signs protesting Democrats people!

Also make more signs that clearly state that both parties can get lost.  They’re BOTH part of the problem.

1zouzouna:

We no longer accept the idea of political ownership.  It is the corporate media wolves trying to define us as Republicrat’s, because they want to deny there is a Revolution happening here and all over the globe.  They so desperately need to define us because they are scared shitless of us.  They pretend to not comprehend our agenda, they keep saying we don’t know what we want.  They only see in Republicrat terms.  Both parties Rep. and Dem. alike have had a direct hand in passing legislation that has aided in this ponzi scheme whereby we, the 99% have been robbed of our wealth and savings and dignity.  This is a global societal movement/revolution, which I am proud to be witnessing and participating in.  Together with all our brothers and sisters of the world we will effect global change so we can all enjoy our right to abundance.

Glenn Greenwald of Salon did a thorough job of trashing the notion that Occupy Wall Street could be turned into a Democratic Party movement:

Can the Occupy Wall Street protests be transformed into a get-out-the-vote organ of Obama 2012 and the Democratic Party?  To determine if this is likely, let’s review a few relevant facts.

In March, 2008, The Los Angeles Times published an article with the headline “Democrats are darlings of Wall St, which reported that both Obama and Clinton “are benefiting handsomely from Wall Street donations, easily surpassing Republican John McCain in campaign contributions.”   In June, 2008, Reuters published an article entitled “Wall Street puts its money behind Obama”; it detailed that Obama had almost twice as much in contributions from “the securities and investment industry” and that “Democrats garnered 57 percent of the contributions from” that industry.  When the financial collapse exploded, then-candidate Obama became an outspoken supporter of the Wall Street bailout.

After Obama’s election, the Democratic Party controlled the White House, the Senate and the House for the first two years, and the White House and Senate for the ten months after that.  During this time, unemployment and home foreclosures were painfully high, while Wall Street and corporate profits exploded, along with income inequality.  In July, 2009, The New York Times dubbed JPMorgan Chase CEO Jamie Dimon “Obama’s favorite banker” because of his close relationship with, and heavy influence on, leading Democrats, including the President.  In February, 2010, President Obama defended Dimon’s $17 million bonus and the $9 million bonus to Goldman CEO Lloyd Blankfein – both of whose firms received substantial taxpayer bailouts – as fair and reasonable.

*   *   *

Would it not be a bit odd for a protest movement to “Occupy Wall Street” while simultaneously devoting itself to keeping Wall Street’s most lavishly funded politician in power?

At Washington’s Blog, we were informed about an attempt by the Democratic-aligned MoveOn organization to wrest control of Occupy Wall Street:

David DeGraw – one of the primary Wall Street protest organizers – just sent me the following email:

Top MoveOn leaders / executives are all over national television speaking for the movement.  fully appreciate the help and support of MoveOn, but the MSM is clearly using them as the spokespeople for OWS.  This is an blatant attempt to fracture the 99% into a Democratic Party organization.  The leadership of MoveON are Democratic Party operatives.  they are divide and conquer pawns.  For years they ignored Wall Street protests to keep complete focus on the Republicans, in favor of Goldman’s Obama and Wall Street’s Democratic leadership.

If anyone at Move On or Daily Kos would like to have a public debate about these comments, we invite it.

Please help us stop this divide and conquer attempt.

DeGraw – who is wholly non-partisan [like the writers at Washington’s Blog] – tells me that there are many political views represented, and that Occupy Wall Street is very diverse with opinions across the political spectrum (and see this.)

This mirrors what some of the original organizers of various “Occupy” protests in other cities have said as well:  MoveOn attempted to take credit for the events.

As I noted last week:

Everyone’s trying to cash in on the courage and conviction of the Wall Street protesters.

People are trying to associate Occupy Wall Street with their pet projects, in the same way that advertisers try to associate the goodwill of the Super Bowl, NBA playoffs, World Series or Olympics with their product.

But I hear from OWS organizers that the protesters come from totally diverse political affiliations.  Many protesters support Ron Paul, many like Obama, others are for other parties or candidates or don’t vote at all.

The protesters themselves are having none of it, tweeting today:

We don’t want to be the democratic tea party or liberal tea party. We want to be our own movement separate of any political affiliation.

Just as President Obama disregarded the opportunity to turn the economy around in 2009, his party scoffed at the opportunity to rehabilitate its tattered reputation in the wake of its failure to enact meaningful financial reform legislation.  The efforts by Democrats to jump the OWS train at this point are transparently specious.  They aren’t fooling anyone.


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Looking Beyond The Smokescreen

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We bloggers have the mainstream news outlets to thank for our readership.  The inane, single-minded focus on a particular story, simply because it brings a huge audience to one’s competitors, regularly provides the driving force behind programming decisions made by those news producers.  As a result, America’s more discerning, critical thinkers have turned to internet-based news sources (and blogs) to familiarize themselves with the more important stories of these turbulent times.

Robert Oak, at The Economic Populist website, recently expressed his outrage concerning the fact that a certain over-publicized murder trial has eclipsed coverage of more important matters:

For over a week we’ve heard nothing else by the press but Casey Anthony.  Imagine what would happen if Nancy Grace used her never ending tape loop rants of hatred against tot mom to spew and prattle about the U.S. economy? Instead of some bizarre post traumatic public stress disorder, stuck in a rut, obsessive thought mantra, repeating ad nauseum, she’s guilty, we might hear our politicians are selling this nation down the river.

*   *   *

Folks, don’t you think the economy is just a little more important and actually impacts your lives than one crime and trial?  The reality is any story which really impacts the daily lives of working America is not covered or spun to fiction.

The fact that “our politicians are selling this nation down the river” has not been overlooked by Brett Arends at MarketWatch.  He recently wrote a great essay entitled, “The Next, Worse Financial Crisis”, wherein he discussed ten reasons “why we are doomed to repeat 2008”.  Of the ten reasons, my favorite was number 7, “The ancient regime is in the saddle”:

I have to laugh whenever I hear Republicans ranting that Barack Obama is a “liberal” or a “socialist” or a communist.  Are you kidding me?  Obama is Bush 44.  He’s a bit more like the old man than the younger one.  But look at who’s still running the economy: Bernanke. Geithner. Summers. Goldman Sachs. J.P. Morgan Chase. We’ve had the same establishment in charge since at least 1987, when Paul Volcker stood down as Fed chairman.  Change?  What “change”?  (And even the little we had was too much for Wall Street, which bought itself a new, more compliant Congress in 2010.)

As the 2012 campaign season begins, one need not look too far to find criticism of President Obama. Nevertheless, as Brett Arends explained, most of that criticism is a re-hash of the same, tired talking points we have been hearing since Obama took office.  We are only now beginning to hear a broader chorus of pushback from commentators who see Obama as the President I have often described as the “Dissapointer-In-Chief”.  Marshall Auerback wasn’t so restrained in his recent appraisal of Obama’s maladroit response to our economic crisis, choosing instead to ratify a well-deserved putdown, which most commentators felt obligated to denounce:

It may not have been the most felicitous choice of phrase, but Mark Halperin’s characterization of Barack Obama was not far off the mark, even if he did get suspended for it.  The President is a dick, at least as far as his understanding of basic economics goes.  Obama’s perverse fixation with deficit reduction uber alles takes him to areas where even George W. Bush and Ronald Reagan dared not to venture.  Medicare and Social Security are now on the table.  In fact entitlements of all kinds (excluding the myriad of subsidies still present to Wall Street) are all deemed fair game.

To what end?  Deficit control and deficit reduction, despite the fact that at present, the US has massive excess capacity including millions of unemployed and underemployed, a negative contribution from net exports, and a stagnant private spending growth horizon.  Yet the President marches on, oblivious to the harm his policies would introduce to an already bleeding economy, using the tired analogy between a household and a sovereign government to support his tired arguments.  It may have been impolitic, but “dick” is what immediately sprang to mind as one listened incredulously to the President’s press conference, which went from the sublime to the ridiculous.

*   *   *

Let’s state it again:  households do not have the power to levy taxes, to issue the currency we use, and to demand that those taxes are paid in the currency it issues.  Rather, households are users of the currency issued by the sovereign government.  Here the same distinction applies to private businesses, which are also users of the currency.  There’s a big difference, as all us on this blog have repeatedly stressed:  Users of a currency do face an external constraint in a way that a sovereign issuer of its currency does not.

*   *   *

The President has the causation here totally backward.  A growing economy, characterized by rising employment, rising incomes and rising capacity utilization causes the deficit to shrink, not the other way around.  Rising prosperity means rising tax revenues and reduced social welfare payments, whereas there is an overwhelming body of evidence to support the opposite – cutting budget deficits when there is slack private spending growth and external deficits will erode growth and destroy net jobs.

The increasing, widespread awareness of Obama’s mishandling of the economic crisis has resulted in a great cover story for New York Magazine by Frank Rich, entitled, “Obama’s Original Sin”.  While discussing Rich’s article, Yves Smith of Naked Capitalism lamented the fact that Obama is – again – the beneficiary of undeserved restraint:

Even Rich’s solid piece treats Obama more kindly that he should be.  He depicts the President as too easily won over by “the best and the brightest” in the guise of folks like Robert Rubin and his protégé Timothy Geithner.

We think this characterization is far too charitable.  Obama had a window in time in which he could have acted, decisively, to rein the financial services in, and he and his aides chose to let it pass and throw their lot in with the banksters.  That fatal decision has severely constrained their freedom of action, as we explain .  .  .

Miscreants such as Casey Anthony serve as convenient decoys for public anger.  Hopefully, by Election Day, the voters will realize that Casey Anthony isn’t to blame for the pathetic state of America’s economy and they will vote accordingly.


 

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Hillary Throws A Tupperware Party

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While reading through Saturday’s Links at the Naked Capitalism website, I came across a posting by Jane Hamsher entitled, “Hillary Clinton Hosts ‘Iraq Opportunities’ Party For War Profiteers”.  I was reminded that a war, initiated under the pretext of finding Saddam Hussein’s “weapons of mass destruction”, was really all about creating “Iraq Opportunities”.  Using the “good cop / bad cop” routine, the “bad cops” of our One-Party System (the “Republican” branch of the Republi-cratic Corporatist Party) promoted a war, which the “good cop” Democrat branch of the Republi-cratic Corporatist Party claimed it was “forced” to support.  Just because Saddam wasn’t really stockpiling any weapons of mass destruction, doesn’t mean we can’t find any “Iraq Opportunities”.

Sure, there’s been a “changing of the guard” since the Iraq war began, but a look at the guest list for Hillary’s “Iraq Opportunities Party” will reveal the identities of some corporations, which expect to benefit from the expenditure of human lives and trillions of taxpayer dollars on the Iraq war effort.  Of course, Halliburton and KBR were invited to send some partygoers to the fete.  But don’t forget – the Obama Administration has been in charge for over two years  . . . so Alex von Sponek of Goldman Sachs was on the guest list.  As you can imagine, a Tupperware Party just wouldn’t be a Tupperware Party without a representative from Tupperware in attendance.  Accordingly, Rick Goins, the company’s CEO, received an invitation.

News of this event confirmed my worst suspicions about the Iraq war.  I wasn’t simply reacting to what Jane Hamsher had to say about Hillary’s Tupperware Party:

As Congress launches a bipartisan PR campaign to stay in Iraq forever, the White House throws a corporate looting party.

Ben White of Politico described the event as an expansion of Wall Street’s tentacles:

FIRST LOOK:  WALL STREET IN IRAQ? – Secretary of State Hillary Clinton and Deputy Secretary Tom Nides (formerly chief administrative officer at Morgan Stanley) will host a group of corporate executives at State this morning as part of the Iraq Business Roundtable.  Corporate executives from approximately 30 major U.S. companies – including financial firms Citigroup, JPMorganChase and Goldman Sachs – will join U.S. and Iraqi officials to discuss economic opportunities in the new Iraq.

While most of us have been conditioned to think of the Iraq War as a product of the neoconservative agenda, several commentators have discussed the role of neoliberalism as a motivator for the invasion of Iraq.  In a great essay entitled, “On Neoliberalism”, Sherry Ortner of the Anthropology Of This Century website, discussed the role of what Naomi Klein, author of The Shock Doctrine, called “disaster capitalism” in bringing us to that moment of “shock and awe”:

If social or natural disasters do not offer themselves up, Klein shows convincingly that they will be manufactured, the war in Iraq being the latest case in point.  Let us follow the Iraq war thread into David Harvey’s 2007 book, A Short History of Neo-Liberalism, where it is his opening example.   Like Klein, Harvey sees “the management and manipulation of crises” (p. 162), whether floods, wars, or financial melt-downs, as part and parcel of establishing the neoliberal agenda.  And like Klein, he provides abundant evidence to show that the war in Iraq was a crisis manufactured to “impose by main force on Iraq… a state apparatus whose fundamental mission was to facilitate conditions for profitable capital accumulation”(p. 7).

Harvey offers a clear definition of neoliberalism as a system of “accumulation by dispossession,” which has four main pillars:  1) the “privatization and commodification” of public goods; 2) “financialization,” in which any kind of good (or bad) can be turned into an instrument of economic speculation; 3) the “management and manipulation of crises” (as above); and 4) “state redistribution,” in which the state becomes an agent of the upward redistribution of wealth (159-164 passim).

Harvey places particular emphasis on the last point, the upward redistribution of wealth.  He takes issue with other writers who argue that the enormous growth of social inequality since the beginnings of neoliberalization in the 1970s is an unfortunate by-product of what is otherwise a sound economic theory.  Instead Harvey sees the vast enrichment of an upper class of capital owners and managers at the expense of everyone else as an intrinsic part of the neoliberal agenda:  “Redistributive effects and increasing social inequality have in fact been such a persistent feature of neoliberalization as to be regarded as structural to the whole project.” (p. 16).

The only real surprise to me was the revelation that the elite “upper class of capital owners and managers” likes to attend Tupperware parties.


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Goldman Sachs In The Crosshairs

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Last December, I expressed my disappointment and skepticism that the culprits responsible for having caused the financial crisis would ever be brought to justice.  I found it hard to understand why neither the Securities and Exchange Commission nor the Justice Department would be willing to investigate malefaction, which I described in the following terms:

We often hear the expression “crime of the century” to describe some sensational act of blood lust.  Nevertheless, keep in mind that the financial crisis resulted from a massive fraud scheme, involving the packaging and “securitization” of mortgages known to be “liars’ loans”, which were then sold to unsuspecting investors by the creators of those products – who happened to be betting against the value of those items.  In consideration of the fact that the credit crisis resulting from this scam caused fifteen million people to lose their jobs as well as an expected 8 – 12 million foreclosures by 2012, one may easily conclude that this fraud scheme should be considered the crime of both the last century as well as the current century.

Fortunately, the tide seems to have turned with the recent release of the Senate Investigations Subcommittee report on the financial crisis.  The two-year, bipartisan investigation, led by Senators Carl Levin (D-Michigan) and Tom Coburn (R-Oklahoma) has given rise to new hope that the banks responsible for causing the financial crisis – particularly Goldman Sachs – could face criminal prosecution.  Tom Braithwaite of the Financial Times put it this way:

The Senate report criticised rating agencies, regulators and other banks.  But Goldman has drawn particular focus.  Eric Holder, attorney-general, said this month the justice department was looking at the report “that deals with Goldman”.

Will Attorney General Eric Hold-harmless initiate criminal proceedings against President Obama’s leading private source of 2008 campaign contributions?  I doubt it.  Nevertheless, the widespread meme that no laws were violated by Goldman or any of the other Wall Street megabanks, is coming under increased attack.  Matt Taibbi recently wrote an excellent piece for Rolling Stone entitled, “The People vs. Goldman Sachs”, which took a humorous jab at those who deny that the financial crisis resulted from illegal activity:

Defenders of Goldman have been quick to insist that while the bank may have had a few ethical slips here and there, its only real offense was being too good at making money.  We now know, unequivocally, that this is bullshit.  Goldman isn’t a pudgy housewife who broke her diet with a few Nilla Wafers between meals – it’s an advanced-stage, 1,100-pound medical emergency who hasn’t left his apartment in six years, and is found by paramedics buried up to his eyes in cupcake wrappers and pizza boxes.  If the evidence in the Levin report is ignored, then Goldman will have achieved a kind of corrupt-enterprise nirvana.  Caught, but still free:  above the law.

Taibbi focused on the easiest case to prosecute:  a perjury charge against Goldman CEO Lloyd Blankfein for his testimony before the Levin-Coburn Senate Subcommittee.  Blankfein denied under oath that his firm had a “short” position, betting against the very Collateralized Debt Obligations (CDOs) that Goldman had been selling to its customers.  As Taibbi pointed out, this conflict of interest was the subject of a book by Michael Lewis entitled, The Big Short.  At issue is the response Blankfein gave to the question about whether Goldman Sachs had such a short position:

“Much has been said about the supposedly massive short Goldman Sachs had on the U.S. housing market.  The fact is, we were not consistently or significantly net-short the market in residential mortgage-related products in 2007 and 2008.  We didn’t have a massive short against the housing market, and we certainly did not bet against our clients.”

As Tom Braithwaite explained in the Financial Times, Senator Levin expressed concern that Blankfein could defend a perjury charge, based on his use of the words “consistently or significantly” in the above-quoted response.  Levin’s concern is that those words could be deemed significantly equivocal as to prevent the characterization of Blankfein’s response as a denial that Goldman had such a short position.  Nevertheless, the last sentence of the response is an unqualified, compound statement, which could support a perjury charge:

We didn’t have a massive short against the housing market, and we certainly did not bet against our clients.

I would be very amused to watch someone make the specious argument that Goldman’s $13 billion short position was not “massive”.

Meanwhile, New York Attorney General Eric Schneiderman is moving ahead to pursue an investigation concerning the role of the Wall Street banks in causing the financial crisis.  Gretchen Morgenson of The New York Times provided this explanation of Schneiderman’s current effort:

The New York attorney general has requested information and documents in recent weeks from three major Wall Street banks about their mortgage securities operations during the credit boom, indicating the existence of a new investigation into practices that contributed to billions in mortgage losses.

*   *   *

It is unclear which parts of the byzantine securitization process Mr. Schneiderman is focusing on. His spokesman said the attorney general would not comment on the investigation, which is in its early stages.

*   *   *

The requests for information by Mr. Schneiderman’s office also seem to confirm that the New York attorney general is operating independently of peers from other states who are negotiating a broad settlement with large banks over foreclosure practices.

By opening a new inquiry into bank practices, Mr. Schneiderman has indicated his unwillingness to accept one of the settlement’s terms proposed by financial institutions – that is, a broad agreement by regulators not to conduct additional investigations into the banks’ activities during the mortgage crisis.  Mr. Schneiderman has said in recent weeks that signing such a release was unacceptable.

*   *   *

It is unclear whether Mr. Schneiderman’s investigation will be pursued as a criminal or civil matter.

Are the banksters running scared yet?  John Carney of CNBC’s NetNet blog, noted some developments, which could signal that some potential “persons of interest” might be seeking cover:

A Warning Sign:  CFOs Resigning

The chief financial officers of both Wells Fargo and Bank of America recently resigned.  JPMorgan Chase replaced its CFO last year.  While each of these moves has been spun as benign news by the banks, it could be a warning sign that something is deeply amiss.

Hope springs eternal!


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