TheCenterLane.com

© 2008 – 2019 John T. Burke, Jr.

Banksters Live Up to the Nickname

Comments Off on Banksters Live Up to the Nickname

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?


 

Obama And The TARP

Comments Off on Obama And The TARP

I always enjoy it when a commentator appearing on a talk show reminds us that President Obama has become a “tool” for the Wall Street bankers.  This theme is usually rebutted with the claim that the TARP bailout happened before Obama took office and that he can’t be blamed for rewarding the miscreants who destroyed our economy.  Nevertheless, this claim is not entirely true.  President Bush withheld distribution of one-half of the $700 billion in TARP bailout funds, deferring to his successor’s assessment of the extent to which the government should intervene in the banking crisis.  As it turned out, during the final weeks of the Bush Presidency, Hank Paulson’s Treasury Department declared that there was no longer an “urgent need” for the TARP bailouts to continue.  Despite that development, Obama made it clear that anyone on Capitol Hill intending to get between the banksters and that $350 billion was going to have a fight on their hands.  Let’s jump into the time machine and take a look at my posting from January 19, 2009 – the day before Obama assumed office:

On January 18, Salon.com featured an article by David Sirota entitled:  “Obama Sells Out to Wall Street”.  Mr. Sirota expressed his concern over Obama’s accelerated push to have immediate authority to dispense the remaining $350 billion available under the TARP (Troubled Asset Relief Program) bailout:

Somehow, immediately releasing more bailout funds is being portrayed as a self-evident necessity, even though the New York Times reported this week that “the Treasury says there is no urgent need” for additional money.  Somehow, forcing average $40,000-aires to keep giving their tax dollars to Manhattan millionaires is depicted as the only “serious” course of action.  Somehow, few ask whether that money could better help the economy by being spent on healthcare or public infrastructure.  Somehow, the burden of proof is on bailout opponents who make these points, not on those who want to cut another blank check.

Discomfort about another hasty dispersal of the remaining TARP funds was shared by a few prominent Democratic Senators who, on Thursday, voted against authorizing the immediate release of the remaining $350 billion.  They included Senators Russ Feingold (Wisconsin), Jeanne Shaheen (New Hampshire), Evan Bayh (Indiana) and Maria Cantwell (Washington).  The vote actually concerned a “resolution of disapproval” to block distribution of the TARP money, so that those voting in favor of the resolution were actually voting against releasing the funds.  Earlier last week, Obama had threatened to veto this resolution if it passed.  The resolution was defeated with 52 votes (contrasted with 42 votes in favor of it).  At this juncture, Obama is engaged in a game of “trust me”, assuring those in doubt that the next $350 billion will not be squandered in the same undocumented manner as the first $350 billion.  As Jeremy Pelofsky reported for Reuters on January 15:

To win approval, Obama and his team made extensive promises to Democrats and Republicans that the funds would be used to better address the deepening mortgage foreclosure crisis and that tighter accounting standards would be enforced.

“My pledge is to change the way this plan is implemented and keep faith with the American taxpayer by placing strict conditions on CEO pay and providing more loans to small businesses,” Obama said in a statement, adding there would be more transparency and “more sensible regulations.”

Of course, we all know how that worked out  .   .   .  another Obama promise bit the dust.

The new President’s efforts to enrich the Wall Street banks at taxpayer expense didn’t end with TARP.  By mid-April of 2009, the administration’s “special treatment” of those “too big to fail” banks was getting plenty of criticism.  As I wrote on April 16 of that year:

Criticism continues to abound concerning the plan by Turbo Tim and Larry Summers for getting the infamous “toxic assets” off the balance sheets of our nation’s banks.  It’s known as the Public-Private Investment Program (a/k/a:  PPIP or “pee-pip”).

*   *   *

One of the harshest critics of the PPIP is William Black, an Economics professor at the University of Missouri.  Professor Black gained recognition during the 1980s while he was deputy director of the Federal Savings and Loan Insurance Corporation (FSLIC).

*   *   *

I particularly enjoyed Black’s characterization of the PPIP’s use of government (i.e. taxpayer) money to back private purchases of the toxic assets:

It is worse than a lie.  Geithner has appropriated the language of his critics and of the forthright to support dishonesty.  That is what’s so appalling — numbering himself among those who convey tough medicine when he is really pandering to the interests of a select group of banks who are on a first-name basis with Washington politicians.

The current law mandates prompt corrective action, which means speedy resolution of insolvencies.  He is flouting the law, in naked violation, in order to pursue the kind of favoritism that the law was designed to prevent.  He has introduced the concept of capital insurance, essentially turning the U.S. taxpayer into the sucker who is going to pay for everything.  He chose this path because he knew Congress would never authorize a bailout based on crony capitalism.

Although President Obama’s hunt for Osama bin Laden was a success, his decision to “punt” on the economic stimulus program – by holding it at $862 billion and relying on the Federal Reserve to “play defense” with quantitative easing programs – became Obama’s own “Tora Bora moment”, at which point he allowed economic recovery to continue on its elusive path away from us.  Economist Steve Keen recently posted this video, explaining how Obama’s failure to promote an effective stimulus program has guaranteed us something worse than a “double-dip” recession:  a quadruple-dip recession.

Many commentators are currently discussing efforts by Republicans to make sure that the economy is in dismal shape for the 2012 elections so that voters will blame Obama and elect the GOP alternative.  If Professor Keen is correct about where our economy is headed, I can only hope there is a decent Independent candidate in the race.  Otherwise, our own “lost decade” could last much longer than ten years.


wordpress stats


An Army Of Lobbyists For The Middle Class

Comments Off on An Army Of Lobbyists For The Middle Class

Federal Reserve Chairman, Ben Bernanke appeared before the Senate Banking Committee this week to testify about the Fed’s monetary policy.  Scot Kersgaard of The American Independent focused our attention on a five-minute exchange between Colorado Senator Michael Bennett and The Ben Bernank, with an embedded video clip.  Senator Bennett asked Bernanke to share his opinions concerning the recommendations made by President Obama’s bipartisan deficit commission.  Bernanke initially attempted to dodge the question with the disclaimer that the Fed’s authority extends to only monetary policy rather than fiscal policy – such as the work conducted by the deficit commission.  If Congressman Ron Paul had been watching the hearing take place, I’m sure he had a good, hard laugh at that statement.  Nevertheless, Bernanke couldn’t restrain himself from concurring with the effort to place the cost of Wall Street’s larceny on the backs of middle-class taxpayers.

The chant for “entitlement reform” continues to reverberate throughout the mainstream media as it has for the past year.  Last May, economist Dean Baker exposed this latest effort toward upward wealth redistribution:

Emboldened by the fact that none of them have gone to jail for their role in the financial crisis, the Wall Street gang is now gunning for Social Security and Medicare, the country’s most important safety net programs. Led by investment banker Pete Peterson, this crew is spending more than a billion dollars to convince the public that slashing these programs is the only way to protect our children and grandchildren from poverty.

A key propaganda tactic used by the “entitlement reform” crusaders is to characterize Social Security as an “entitlement” even though it is not (as I discussed here).  Phil Davis, avowed capitalist and self-described “serial entrepreneur”, wrote a great essay, which refuted the claim that Social Security is “broken” while explaining why it is not an “entitlement”.  Unfortunately, there are very few politicians who are willing to step forward to provide the simple explanation that Social Security is not an entitlement.  Senator Richard Blumenthal (D-Conn.) recently made a statement to that effect before a senior citizens’ group in East Haven, Connecticut – without really providing an explanation why it is not an entitlement.  Susan Feiner wrote a great commentary on the subject last fall for womensenews.org.  Here is some of what she said:

Moreover, Social Security is not an entitlement program as it’s paid for entirely by payroll taxes.  It is an insurance program, not an entitlement. Not one penny of anyone’s Social Security comes out of the federal government’s general fund.

Social Security is, by law, wholly self-financing.  It has no legal authority to borrow, so it never has.

If this incredibly successful and direly needed program hasn’t ever borrowed a dime, why is the president and his hand-picked commissioners putting Social Security cuts (and/or increases in the retirement age) in the same sentence as deficit reduction?

The attempt to mischaracterize Social Security as an “entitlement” is not a “Right vs. Left” dispute —  It’s a class warfare issue.  There have been commentaries from across the political spectrum emphasizing the same fact:  Social Security is not an “entitlement”.  The assertion has appeared on the conservative patriotsteaparty.net website, the DailyKos on the Left and in a piece by independent commentator, Marti Oakley.

The battle for “entitlement reform” is just one front in the larger war being waged by Wall Street against the middle class.  Kevin Drum discussed this conflict in a recent posting at his Plutocracy Now blog for Mother Jones:

It’s about the loss of a countervailing power robust enough to stand up to the influence of business interests and the rich on equal terms.  With that gone, the response to every new crisis and every new change in the economic landscape has inevitably pointed in the same direction.  And after three decades, the cumulative effect of all those individual responses is an economy focused almost exclusively on the demands of business and finance.  In theory, that’s supposed to produce rapid economic growth that serves us all, and 30 years of free-market evangelism have convinced nearly everyone — even middle-class voters who keep getting the short end of the economic stick — that the policy preferences of the business community are good for everyone.  But in practice, the benefits have gone almost entirely to the very wealthy.

One of my favorite commentators, Paul Farrell of MarketWatch made this observation on March 1:

Wall Street’s corrupt banks have lost their moral compass … their insatiable greed has become a deadly virus destroying its host nation … their campaign billions buy senate votes, stop regulators’ actions, manipulate presidential decisions.  Wall Street money controls voters, runs America, both parties.  Yes, Wall Street is bankrupting America.

Wake up America, listen:

  • “Our country is bankrupt.  It’s not bankrupt in 30 years or five years,” warns economist Larry Kotlikoff, “it’s bankrupt today.”
  • Economist Peter Morici:  “Capitalism is broken, America’s government is two bankrupt political parties bankrupting the country.”
  • David Stockman, Reagan’s budget director:  “If there were such a thing as Chapter 11 for politicians” the “tax cuts would amount to a bankruptcy filing.”
  • BusinessWeek recently asked analyst Mary Meeker to run the numbers.  How bad is it? America really is bankrupt, with a “net worth of a negative $44 trillion.” Bankrupt.

And it will get worse.  Unfortunately, nothing can stop America’s self-destructive Wall Street bankers.  They simply do not care that their “doomsday capitalism” is destroying themselves from within, and is bankrupting America too.

On February 21, I quoted a statement made by bond guru Bill Gross of PIMCO, which included this thought:

America requires more than a makeover or a facelift.  It needs a heart transplant absent the contagious antibodies of money and finance filtering through the system.  It needs a Congress that cannot be bought and sold by lobbyists on K Street, whose pockets in turn are stuffed with corporate and special interest group payola.

That essay by Bill Gross became the subject of an article by Terrence Keeley of Bloomberg News.  Mr. Keeley’s reaction to the suggestions made by Bill Gross was this:

To redeem Wall Street’s soul, radical solutions are clearly needed, but advocating the eradication of profit-based markets that have served humanity well on balance without a viable replacement is fanciful. Gross deserves an “A” for intent — but something more practical than a “heart transplant” is required to restore trust and efficacy to our banking system.

*   *   *

But an economy based on something other than profit risks misery and injustice of another sort.  The antibodies now needed aren’t those that negate profitability.  Rather, they are the ones that bind financial engineering to value creation and advancement of society.

Perhaps the most constructive solution to the problem is my suggestion from February 10:  Recruit and employ an army of lobbyists to represent and advance the interests of the middle class on Capitol Hill.  Some type of non-partisan, “citizens’ lobby” could be created as an online community.  Once its lobbying goals are developed and articulated, an online funding drive would begin.  The basic mission would be to defend middle-class taxpayers from the tyranny of the plutocracy that is destroying not just the middle class – but the entire nation.  Fight lobbyists with lobbyists!


wordpress stats


Revenge Of The Blondes

Comments Off on Revenge Of The Blondes

My vintage iPhone sputtered, stammered and finally stalled out as I tried to access an article about derivatives trading after clicking on the link.  The process got as far as the appearance of the URL, which indicated that the source was The New York Times.  I assumed that the piece had been written by Gretchen Morgenson and that I could read it once I sat down at my regular computer.  Within moments, I was at The Big Picture website, where I found another link to the same article.  This time it worked and I found that the piece had been written by Louise Story.  “Wrong blonde”, I thought to myself.  It was at that point when I realized how much the world had changed from the days when “dumb blonde” jokes had been so popular.  In fact, a vast amount of the skullduggery that caused and resulted from the financial crisis has been exposed and explained by women with blonde hair.  After a handful of unscrupulous Wall Street bankers brought the world’s financial system to the brink of collapse, an even smaller number of blonde, female sleuths set about unwinding this complex web of deceit for “the Average Joe” to understand.  Here are a few of them:

Yves Smith

All right  .  .  .   It’s an old picture from her days at Goldman Sachs.  Cue-up Duran Duran.  (It’s almost as old as the photo of Ben Bernanke in my fake Chandon ad, based on their  “Life needs bubbles” theme.)  On most days, the first blog I access is Naked Capitalism.  Its publisher and most frequent contributor is Yves Smith (a/k/a Susan Webber).  At the Seeking Alpha website, a review of her recent book, ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism, began this way:

ECONNED is the most deeply researched and empirically validated account of the financial meltdown of 2008-2009 and how its unaddressed causes predict similar crises to come.  As a long-time Wall Street veteran, Yves Smith, through her influential blog “Naked Capitalism” lucidly explains to her over 2500,000 unique visitors each month exactly what games market players use and how their “innovations” evolved over the years to take the rest of us to the cleaners.  Smith is that unusual combination of scholar, expert, participant and teacher, who writes with a clarifying sense of moral outrage and disgust at the decline of ethics on Wall Street and financial markets.

Smith’s daily list of Links at Naked Capitalism, covers a broad range of newsworthy subjects both within and beyond the financial realm.  I usually find myself reading all of the articles linked on that page.

Gretchen Morgenson

Gretchen Morgenson is my favorite reporter for The New York Times.  She has proven herself to be Treasury Secretary Turbo Tim Geithner’s worst nightmare.  Ms. Morgenson has caused Geithner so much agony, I would not be surprised to hear that he named his recent kidney stone after her.  With Jo Becker, Ms. Morgenson wrote the most revealing essay on Geithner back in April of 2009.  Once you’ve read it, you will have a better understanding of why Geithner gave away so many billions to the banksters as president of the New York Fed by way of Maiden Lane III.  Morgenson subsequently wrote her own article on Maiden Lane III here.

Ms. Morgenson has many detractors.  Most prominent among them was the late Tanta (a/k/a Doris Dungey) of the Calculated Risk blog, who wrote the recurring “Morgenson Watch” for that site.  Yves Smith of Naked Capitalism (see above) accurately summed up the bulk of the criticism directed against Gretchen Morgenson:

Gretchen Morgenson is often a target of heated criticism on the blogosphere, which I have argued more than once is overdone.  While her articles on executive compensation and securities litigation are consistently well reported, she has an appetite for the wilder side of finance, and often looks a bit out of her depth.  Typically, she simply runs afoul of finance pedants, who jump on misapplication of industry jargon or minor errors when those (admittedly disconcerting) errors fail to derail the thrust of the argument.

A noted example of this was Morgenson’s article of March 6 2010, in which she explained that Greece was hiding its financial obligations with “credit default swaps” rather than currency swaps.  The bloggers who vigilantly watch for her to make such a mistake wouldn’t let go of that one for quite a while.  Nevertheless, I like her work.  Nobody is perfect.

Louise Story

As I mentioned at the outset of this piece, Louise Story wrote the recent article for The New York Times, concerning anticompetitive practices in the credit derivatives clearing, trading and information services industries.  Discussing that subject in a manner that can make it understandable to the “average reader” (someone with a high school education) is no easy task.  Beyond that, Ms. Story was able to explain the frustrations of regulators, who had hoped that some degree of transparency could be introduced to the derivatives market as a result of the recently enacted, “Dodd-Frank” financial reform bill.  It’s an important article, which has drawn a good deal of well-deserved attention.

Last year, Ms. Story co-authored a New York Times article with Gretchen Morgenson, concerning collateralized debt obligations (CDOs) entitled, “Banks Bundled Bad Debt, Bet Against It and Won”.  As I pointed out at the time:  Pay close attention to the explanation of how Tim Geithner retained a “special counselor” whose previous responsibilities included oversight of the parent company of an investment firm named Tricadia, Inc.  Tricadia has the dubious honor of having helped cause the financial crisis by creating CDOs and then betting against them.

These three women, as well as a number of their non-blonde counterparts (including:  Nomi Prins, Janet Tavakoli and Naomi Klein) have exposed a vast amount of the odious activities that caused the financial crisis.  They have helped inform and educate the public on what the “good old boys” network of bankers, regulators and lobbyists have been doing to this country.  The paradigm shift that took us beyond the sexist stereotype of the  “dumb blonde” has brought our society to the point where women – often blonde ones – have intervened to alert the rest of us to the hazards caused by what Paul Farrell of MarketWatch described as “Wall Street’s macho ego trip”.

If you should come across someone who still tells “dumb blonde” jokes – ask that person if he (or she) has read ECONned.


wordpress visitor


Screw The People And Save The Banks

Comments Off on Screw The People And Save The Banks

The economic crisis in Ireland (and the rest of Europe) has resulted in a morass of published commentaries, some of which make sense and most of which don’t.  Sometimes it appears as though the writer hasn’t really formed an opinion on the issue, even though the tone of the article seems to be expressing one.  The problem experienced in Ireland is the same as it is everywhere else:  During tough economic times, governments always choose to bail out the banks regardless of the expense and suffering to be endured by the citizens.  The Pragmatic Capitalist recently upbraided the writer of one of the more poorly-thought-out essays dealing with the Irish predicament:

Sheila Bair, the head of the FDIC, has remained one of the more levelheaded and helpful leaders during the financial crisis.  But in an op-ed in the Washington Post this morning she took a decisive turn for the worse when she waded into waters that were certain to drown her.  Bair is now echoing the cries that have been heard across Ireland for the last 2 years – cries of fiscal austerity.  Of course, the USA is nothing like Ireland and has an entirely different monetary system, but Bair ignores all of this (in fact proves she is entirely ignorant of this).  What’s sad is that Bair clearly understands that this crisis is still largely hurting Main Street America   .   .   .

To the extent that the Irish situation bears any resemblance to what we are experiencing (or may soon experience) in the United States, economist John Hussman has written the best essay on this issue.  Hussman began with this point, made by another economist:

“If you have bad banks then you very urgently want to clean up your banks because bad banks go only one way:  they get worse. In the end every bank is a fiscal problem.  When you have bad banks, it is in a political environment where it is totally understood that the government is going to bail them out in the end.  And that’s why they are so bad, and that’s why they get worse.  So cleaning up the banks is an essential counterpart of any attempt to have a well functioning economy.  It is a counterpart of any attempt to have a dull, uninteresting macroeconomy.  And there is no excuse to do it slowly because it is very expensive to postpone the cleanup.  There is no technical issue in doing the cleanup.  It’s mostly to decide to start to grow up and stop the mess.”

MIT Economist Rudiger Dornbusch, November 1998

The TARP bailout was not the only time when our government chose a temporary fix (as in cure or heroin injection) at great taxpayer expense.  I’ve complained many times about President Obama’s decision to scoff at using the so-called “Swedish solution” of putting the zombie banks through temporary receivership.  John Hussman discussed the consequences:

If our policy makers had made proper decisions over the past two years to clean up banks, restructure debt, and allow irresponsible lenders to take losses on bad loans, there is no doubt in my mind that we would be quickly on the course to a sustained recovery, regardless of the extent of the downturn we have experienced.  Unfortunately, we have built our house on a ledge of ice.

*   *   *

As I’ve frequently noted, even if a bank “fails,” it doesn’t mean that depositors lose money.  It means that the stockholders and bondholders do.  So if it turns out, after all is said and done, that the bank is insolvent, the government should get its money back and the remaining entity should be taken into receivership, cut away from the stockholder liabilities, restructured as to bondholder liabilities, recapitalized, and reissued.  We did this with GM, and we can do it with banks.  I suspect that these issues will again become relevant within the next few years.

The present situation

Europe will clearly be in the spotlight early this week, as a run on Irish banks coupled with large fiscal deficits has created a solvency crisis for the Irish government itself and has been (temporarily) concluded with a bailout agreement.  Ireland’s difficulties are the result of a post-Lehman guarantee that the Irish government gave to its banking system in 2008.  The resulting strains will now result in a bailout, in return for Ireland’s agreement to slash welfare payments and other forms of spending to recipients that are evidently less valuable to society than bankers.

*   *   *

Over the short run, Ireland will promise “austerity” measures like Greece did – large cuts in government spending aimed at reducing the deficit.  Unfortunately, imposing austerity on a weak economy typically results in further economic weakness and a shortfall on the revenue side, meaning that Ireland will most probably face additional problems shortly anyway.

The “austerity” approach is more frequently being used as a dividing line to distinguish “liberal” economists from “conservative” economists.  The irony here is that many so-called liberal politicians are as deeply in the pocket of the banking lobby as their conservative counterparts.  Economist Dean Baker recently wrote an article for The Guardian, urging Ireland to follow the example of Argentina and simply default on its debt:

The failure of the ECB or IMF to take steps to rein in the bubble before the crisis has not made these international financial institutions shy about using a heavy hand in imposing conditions now.  The plan is to impose stiff austerity, requiring much of Ireland’s workforce to suffer unemployment for years to come as a result of the failure of their bankers and the ECB.

While it is often claimed that these institutions are not political, only the braindead could still believe this.  The decision to make Ireland’s workers, along with workers in Spain, Portugal, Latvia and elsewhere, pay for the recklessness of their country’s bankers is entirely a political one.  There is no economic imperative that says that workers must pay; this is a political decision being imposed by the ECB and IMF.

Bloomberg News columnist, Matthew Lynn wrote a great article for the Pittsburgh Tribune-Review, setting out five reasons why Ireland should refuse a bailout from the European Union and the International Monetary Fund to opt for default as the logical approach.

Pay close attention to how your favorite politicians weigh-in on the Irish situation.  It should give you a fairly good tip as to what actions those pols can be expected to take when the Wall Street bankers dash back to Capitol Hill for TARP 2 The Sequel.


wordpress visitor


Absence Of Anger

Comments Off on Absence Of Anger

I’ve been reading quite a number of articles written in anticipation of a revolutionary uprising by outraged citizens in response to the fallout from Wall Street’s giant Ponzi scheme.  The writers of these items are talking about a more significant uprising than anything we have seen from the Tea Party demonstrators.  Some are expecting riots in the streets.  Since widespread civil unrest has recently taken place in Europe, much attention has been focused on the issue of whether anything like that could happen in the United States.  From my own perspective, I just don’t see it happening.  Nevertheless, I can’t understand what keeps the American public from getting really mad at this point.  It could be due to an epidemic of Attention Deficit Disorder or excessive preoccupation with other distractions.  Perhaps some sort of far-flung conspiratorial effort is under way, involving mass hypnosis via television or drugged drinking water.

On the other hand, I do agree with those commentators on the point that the predicted insurgent reactions are entirely foreseeable.  Are they likely?  Consider what these pundits have said and decide for yourself   .  .  .

One of my favorite commentators, Paul Farrell of MarketWatch, discussed an inevitable backlash against the super-rich, who are waging class warfare by victimizing those of us down the food chain.  Nevertheless, he doesn’t really make it clear how this revolution will manifest itself.  Will there be actual physical violence  . . .  or just a “bloodbath” in the stock market?  Here is how he described it:

Yes, it’s called the Doomsday Capitalism revolution.  And I’m betting you’ll be able to track it on Twitter.

*   *   *

This new preemptive war is already in progress, and America’s billionaires are the aggressors:  Buffett’s billionaire buddies on the Forbes lists, his Wall Street banker buddies, his exporter buddies in China, all of Buffett’s buddies in this “rich class” are already engaged in a hostile takeover war against the American middle class, against the working class and the poor, against all Americans not on the Forbes lists of billionaires.

*   *   *

Here’s how I imagine this revolution unfolding as a series of rapid-fire tweets, as citizen-warriors pass along this collection of earlier warnings to reenergize and drive the rest of America to rebel against Buffett’s “rich class,” tweets that will trigger an anti-capitalist revolution.

Warning to all investors:  Prepare now, play defense.  Expect an economic upheaval rivaling the 1929 crash, creating a climate for true reform that will make the 1930s look like a real tea party.

At The Curious Capitalist blog, Stephen Gandel pondered what would result from all the fear and loathing about whether the Federal Reserve would begin another round of quantitative easing.  His essay was entitled, “Will the Federal Reserve Cause a Civil War?”  Mr. Gandel focused on a recent posting at the Zero Hedge website, which quoted this observation by Karl Denninger:

In a very real sense, Bernanke is throwing Granny and Grandpa down the stairs – on purpose.  He is literally threatening those at the lower end of the economic strata, along with all who are retired, with starvation and death, and in a just nation where the rule of law controlled instead of being abused by the kleptocrats he would be facing charges of Seditious Conspiracy, as his policies will inevitably lead to the destruction of our republic.

Stephen Gandel analyzed the potential for civil war as a consequence of more quantitative easing with this logic:

Lower rates do tend to favor borrowers over savers.  And the largest borrowers in the country are banks, speculators and large corporations.  The largest spenders in our country though tend to be individuals.  Consumer spending makes up 70% of the economy.  And the vast majority of consumers are on the low-end of the income scale.  So I think it is a valid question to ask whether the Fed’s desire to drive down interest rates at all costs policy is working.  Companies are already borrowing at low rates. They are just not spending.        .   .   .

That being said, civil war, probably not.  “It is a gross exaggeration,” says Allan Meltzer, who is a top Fed historian at Carnegie Mellon.  “I cannot recall ever learning about riots or civil war even when the Fed made other mistakes.”

Meanwhile, the prognostications of a gentleman named Gerald Celente appear to be gaining a good deal of traction.  Here are some of Celente’s thoughts as they appeared in his own Trend Alert newsletter, back in April of 2009:

“Nothing short of total repudiation of our entrenched systems can rescue America,” said Celente.  “We are under the control of a two-headed, one party political system.  Wall Street controls our financial lives; the media manipulates our minds.  These systems cannot be changed from within. There is no alternative.  Without a revolution, these institutions will bankrupt the country, keep fighting failed wars, start new ones, and hold us in perpetual intellectual subjugation.”

*   *   *

“I am calling for an ‘Intellectual Revolution’.  I ask American citizens to free their minds from the tyranny of ‘Dumb Think.’  This is a revolution about thinking – not manning the barricades.  It’s about brain power – not brute force.”

It would seem that some degree of anger would be required to incite an “Intellectual Revolution” —  even one without any acts of insurrection.  At this point, it just doesn’t appear as though the American taxpayers are really there yet – Tea Party or not.  People who “want their country back” aren’t the people who will lead this charge.  Watch out for the people who want their jobs, homes and money back.  They will be the ones with the requisite anger to seek real change – as opposed to the “change you can believe in”.


wordpress visitor