government guarantees « TheCenterLane.com

NOAA Uses Human Canaries To Test Gulf Fish

July 5th, 2010 Posted in Uncategorized

Jul, 05 2010

Comments Off

July 5, 2010

I recently checked in on the website for the National Oceanic and Atmospheric Administration (NOAA) for the latest update on the Deepwater Horizon oil plume. The site features a map depicting the “fishery closure area” – a rather huge section of the Gulf of Mexico consisting of over 81,000 square miles — where fishing is prohibited. I immediately began to wonder whether some of the toxic fish from the fishery closure area might swim outside of their boundary and find their way onto someone’s plate. Apparently, the folks at NOAA thought of that themselves, so they developed a testing protocol to ascertain whether Gulf fish intended for human consumption might have been contaminated with petrochemicals and/or Corexit – the creepy dispersant that has been banned in Britain, although it has been used extensively in response to the Deepwater Horizon catastrophe. Corexit 9500, when ingested, has been known to rupture red blood cells and cause internal bleeding. Here is the Material Safety Data Sheet for Corexit 9500, where you can find this useful tidbit:

HUMAN HAZARD CHARACTERIZATION : Based on our hazard characterization, the potential human hazard is: Moderate

What do you think NOAA’s Gulf fish testing protocol involves? Gas chromatography? Scanning electron microscopy? Guess again. They’re having people sniff the fish to determine whether it has been tainted. No kidding. Check it out:

NOAA’s expert seafood assessors are training state personnel to use their sense of smell and taste to detect any unusual odors and flavors in Gulf Coast fish — aromas that could indicate contamination by oil or dispersants from the Deepwater Horizon/BP oil spill.

*   *   *

Using your sense of smell is one of the best methods for determining the safety and acceptability of seafood — sensory analysis is a commonly used tool in seafood safety and quality inspections. An essential element of the job of a NOAA seafood inspector is to determine what qualifies as Grade A fish, which means that seafood must have good flavor and odor.

*   *   *

People are trained by exposing them to various kinds and concentrations of odors and flavors. This process takes time. Some people, unfortunately, are not trainable — some just don’t have an adequate sense of smell to do this work. However, most people have a sense that can be trained to detect specific odors and refined for enhanced sensitivity.

*   *   *

The Deepwater Horizon/BP oil spill is on a scale we’ve never seen before, and we can use all the extra hands — and nostrils — we can get. We are expecting to process tens of thousands of samples in the coming months.

What are sensory testers “sniffing” for?

Sensory testers smell for the distinct scent of oil or chemicals that might differ from the normal odor of fish and shellfish ready for market. When we get a whiff of oil in a seafood sample, we know that the product is unfit for both human consumption and for commercial sale.

In “harmonization” class, we spike fish samples with set concentrations of oil specific to the Deepwater Horizon/BP spill, as well as dispersants, to determine how sensitive our testers and trainees are.

Learning to discern an odor or flavor and properly describing it is something that comes from experience. Some odors or flavors are easily masked by a competing odor or flavor so the training and evaluations need to take place in a controlled setting such as a laboratory. We train people to not only fine-tune their sense of smell to the oil and dispersants from this particular spill, but also to be able to repeat their sensory abilities and standardize how they describe what they are smelling.

*   *  *

For fish like snapper and grouper, we collect a minimum of six, one-pound samples. First, the fish are filleted. Then, a panel of 10 expert assessors will smell each of the raw samples and record the odor. The samples are then cooked, and the process is repeated so that the experts may smell and taste the fish in its cooked state.

Cooking the product is important for two reasons: First, it releases aromas that may be less detectable in a raw state. Second, some of the testers may be more sensitive to the smell of cooked fish versus raw fish. Either way, smelling both raw and cooked samples assures that our testers can detect the full aromatic possibilities of the fish.

This “sniff testing” struck me as a really stupid idea. It doesn’t sound reliable at all. It is based on the presumption that hazardous levels of numerous chemicals — often in combination — can be detected by the human olfactory sense. Has NOAA considered that these fish sniffers might be getting exposed to hazardous chemicals at levels in excess of the Threshold Limit Values (TLVs) for these substances? How many parts per million of the various petrochemicals are the testers ingesting when they sniff this fish on a continuous basis? Worse yet: How much do they ingest when they eat the fish? I would love to hear the opinion from an independent, objective panel of occupational hygienists about this testing protocol.

NOAA’s fish-sniffing project appears to be just another example of how a stupid mistake (allowing the Deepwater Horizon to operate in the first place) sets off a chain reaction of even more stupid mistakes. Let’s hope the people involved with this testing don’t suffer any unhealthful consequences from this activity. Aside from the risk of adverse physical effects, there is also a good chance that these people signed a release — exculpating “the usual suspects” from any and all liability arising from injuries sustained while conducting these tests. No good deed shall go unpunished.

adverse physical effects, Barack Obama, blog, centrist, Commentary, conflict of interest, Congress, conservative, Corexit, Corexit 9500, Deepwater Horizon, Democrat, dispersants, fish-sniffing project, fishery closure area, government guarantees, Grade A fish, grouper, Gulf of Mexico, harmonization, human hazard characterization, internal bleeding, John Burke, John T Burke Jr, liberal, Material Safety Data Sheet, National Oceanic and Atmospheric Administration, News, NOAA seafood inspector, NOAA Uses Human Canaries To Test Gulf Fish, Obama Administration, Obama Presidency, Opinion, people sniff the fish, Political, Politics, President of the United States, regulatory capture, Republican, Republican Party, revolving door, rupture red blood cells, seafood safety and quality inspections, self-dealing insiders, sensory analysis, Sensory testers, snapper, sniff testing, taxpayers, testing protocol, the center lane, The White House, thecenterlane, Threshold Limit Values, TLVs, toxic fish, United States Senate

Rare Glimpses Of Honesty And Sanity

July 1st, 2010 Posted in Uncategorized

Jul, 01 2010

Comments Off

July 1, 2010

Too many of the commentaries we see these days are either motivated by or calculated to promote hysteria. When someone expresses a rational point of view or an honest look at the skullduggery going on in Washington, it’s as refreshing as a cold beer on a hot, summer day.

With so much panic over sovereign debt and budget deficits afflicting the consensual mood, it’s always great to read a piece by someone willing to analyze the situation from a perspective based on facts instead of fear. Brett Arends wrote a great piece for MarketWatch, dissecting the debt panic and looking at the data to be considered by those implementing public policy on this issue. His essay focused on “the three biggest lies about the economy”: that unemployment is below ten percent, that the markets are panicking about the deficit and that the United States is sliding into socialism. Here is some of what he had to say:

Most people have no idea what’s really going on in the economy. They’re living on spin, myths and downright lies. And if we don’t know the facts, how can we make intelligent decisions?

High unemployment exerts a huge deflationary force on the economy. Beyond that, the income taxes those unemployed citizens used to pay are no longer helping to pick up the tab for our bloated budget. Mr. Arends emphasized the importance of looking at the real unemployment rate – what is referred to as U6 – which includes those people deliberately disregarded when counting the “unemployed”:

For example it counts discouraged job seekers, and those forced to work part-time because they can’t get a full-time job.

That rate right now is 16.6%, just below its recent high and twice the level it was a few years ago.

* * *

Consider, for example, the situation among men of prime working age. An analysis of data at the U.S. Labor Department shows that there are 79 million men in America between the ages of 25 and 65. And nearly 18 million of them, or 22%, are out of work completely. (The rate in the 1950s was less than 10%.) And that doesn’t even count those who are working part-time because they can’t get full-time work. Add those to the mix and about one in four men of prime working age lacks a full-time job.

In exploding the myth about claimed market panic concerning the debt, Arends dug back into his arsenal of common sense, explaining what would happen if the markets were panicked:

. . . the interest rate on government bonds would be skyrocketing. That’s what happens with risky debt: Lenders demand higher and higher interest payments to compensate them for the dangers.

But the rates on U.S. bonds have been plummeting recently. The yield on the 30-year Treasury bond is down to just 4%. By historic standards that’s chickenfeed. Panicked? The bond markets are practically snoring.

The specious claims about domestic socialism don’t really deserve a response, but here is how Arends dealt with that narrative:

Meanwhile, federal spending, about 25% of the economy this year, is expected to fall to about 23% by 2013. In 1983, under Ronald Reagan, it hit 23.5%. In the early 1990s it was around 22%. Some socialism.

Another prevalent false narrative being circulated lately (particularly by President Obama and his administration) concerns the hoax known as the “financial reform” bill. Wisconsin Senator Russ Feingold gave us a rare, disgusted insider’s look at how Wall Street was able to get what it wanted from its lackeys on Capitol Hill:

Since the Senate bill passed, I have had a number of conversations with key members of the administration, Senate leadership and the conference committee that drafted the final bill. Unfortunately, not once has anyone suggested in those conversations the possibility of strengthening the bill to address my concerns and win my support. People want my vote, but they want it for a bill that, while including some positive provisions, has Wall Street’s fingerprints all over it.

In fact, reports indicate that the administration and conference leaders have gone to significant lengths to avoid making the bill stronger.

Lest we forget that the financial crisis of 2008 was caused by the antics of cretins such as “Countrywide Chris” Dodd, Senator Feingold’s essay mentioned that sleazy chapter in Senate history to put this latest disgrace in the proper perspective:

Many of the critical actors who shaped this bill were present at the creation of the financial crisis. They supported the enactment of Gramm-Leach-Bliley, deregulating derivatives, even the massive Interstate Banking bill that helped grease the “too big to fail” skids. It shouldn’t be a surprise to anyone that the final version of the bill looks the way it does, or that I won’t fall in line with their version of “reform.”

As I discussed in “Your Sleazy Government at Work”, the voters will not forget about the Democrats (including President Obama) who undermined financial reform legislation, while pretending to advance it. The Democratic Party has until early 2012 to face up to the fact that their organization would be better off supporting a Presidential candidate with the integrity of Russ Feingold or Maria Cantwell if they expect to maintain control over the Executive branch of our government.

American capitalism, asset bubble, bank bailout, bank stocks, banking crisis, banking lobby, Barack Obama, blog, Brett Arends, budget deficits, centrist, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, conservative, Countrywide Chris Dodd, crony capitalism, Democrat, Democratic Party, Democrats, Department of Labor, derivatives crisis, domestic socialism, economic crisis, economic meltdown, economics, economists, equities markets, Federal Reserve, financial crisis, financial reform, government guarantees, Gramm-Leach-Bliley Act, insolvent banks, investment banks, John Burke, John T Burke Jr, liberal, lobbyists, Maria Cantwell, MarketWatch, moral hazard, mortgage-backed securities, News, Obama Administration, Obama Presidency, Opinion, Political, Politics, President of the United States, Rare Glimpses Of Honesty And Sanity, regulatory capture, Republican, Republican Party, revolving door, Ronald Reagan, Russ Feingold, Securities and Exchange Commission, self-dealing insiders, socialized loss and privatized gain, sovereign debt, stock markets, systemic risk, taxpayer subsidies to investment banks, taxpayers, the center lane, the economy, The White House, thecenterlane, too big to fail, transparency, Treasury Department, U6, unemployment, United States Senate, United States Treasury, Wall Street, Wall Street lobbyists, wealth transfer, welfare for the rich, Your Sleazy Government At Work, zombie banks

Financial Reform Bill Exposed As Hoax

June 28th, 2010 Posted in Uncategorized

Jun, 28 2010

Comments Off

June 28, 2010

You don’t have to look too far to find damning criticism of the so-called financial “reform” bill. Once the Kaufman-Brown amendment was subverted (thanks to the Obama administration), the efforts to solve the problem of financial institutions’ growth to a state of being “too big to fail” (TBTF) became a lost cause. Dylan Ratigan, who had been fuming for a while about the financial reform charade, had this to say about the product that emerged from reconciliation on Friday morning:

It means that the same people who brought you these horrible changes — rising wealth discrepancy, massive unemployment and a crumbling infrastructure – have now further institutionalized the policies that will keep the causes of these problems firmly in place.

The best trashing of this bill came from Tyler Durden at Zero Hedge:

Congrats, middle class, once again you get raped by Wall Street, which is off to the races to yet again rapidly blow itself up courtesy of 30x leverage, unlimited discount window usage, trillions in excess reserves, quadrillions in unregulated derivatives, a TBTF framework that has been untouched and will need a rescue in under a year, non-existent accounting rules, a culture of unmitigated greed, and all of Congress and Senate on its payroll. And, sorry, you can’t even vote some of the idiots that passed this garbage out: after all there is a retiring lame duck in charge of it all. We can only hope his annual Wall Street (i.e. taxpayer funded) annuity will satisfy his conscience for destroying any hope America could have of a credible financial system.

* * *

In other words, the greatest theatrical production of the past few months is now over, it has achieved nothing, it will prevent nothing, and ultimately the financial markets will blow up yet again, but not before the Teleprompter in Chief pummels the idiot public with address after address how he singlehandedly was bribed, pardon, achieved a historic event of being the only president to completely crumble under Wall Street’s pressure on every item that was supposed to reign in the greatest risktaking generation (with Other People’s Money) in history.

Robert Lenzner of Forbes focused his criticism of the bill on the fact that nothing was done to limit the absurd leverage used by the banks to borrow against their capital. After all, at the January 13 hearing of the Financial Crisis Inquiry Commission, Lloyd Bankfiend of Goldman Sachs and JP Morgan’s Dimon Dog admitted that excessive leverage was a key problem in causing the financial crisis. As I discussed in “Lev Is The Drug”:

Lloyd Blankfein repeatedly expressed pride in the fact that Goldman Sachs has always been leveraged to “only” a 23-to-1 ratio. The Dimon Dog’s theme was something like: “We did everything right . . . except that we were overleveraged”.

At Forbes, Robert Lenzner discussed the ugly truth about how the limits on leverage were excised from this bill:

The capitulation on this matter of leverage is extraordinary evidence of Wall Street’s power to influence Congress through its lobbying dollars. It is another example of the public servants serving the agents of finance capitalism. After pumping in gobs of sovereign credit to replace the credit that had been wiped out and replace the supply of credit to the economic system, a weak reform bill will just be an invitation to drum up the leverage that caused the crisis in the first place.

Another victory for the lobbyists came in their sabotage of the prohibition on proprietary trading (when banks trade with their own money, for their own benefit). The bill provides that federal financial regulators shall study the measure, then issue rules implementing it, based on the results of that study. The rules might ultimately ban proprietary trading or they may allow for what Jim Jubak of MSN calls the “de minimus” (trading with minimal amounts) exemption to the ban. Jubak considers the use of the de minimus exemption to the so-called ban as the likely outcome. Many commentators failed to realize how the lobbyists worked their magic here, reporting that the prop trading ban (referred to as the “Volcker rule”) survived reconciliation intact. Jim Jubak exposed the strategy employed by the lobbyists:

But lobbying Congress is only part of the game. Congress writes the laws, but it leaves it up to regulators to write the rules. In a mid-June review of the text of the financial-reform legislation, the Chamber of Commerce counted 399 rule-makings and 47 studies required by lawmakers.

Each one of these, like the proposed de minimus exemption of the Volcker rule, would be settled by regulators operating by and large out of the public eye and with minimal public input. But the financial-industry lobbyists who once worked at the Federal Reserve, the Treasury, the Securities and Exchange Commission, the Commodities Futures Trading Commission or the Federal Deposit Insurance Corp. know how to put in a word with those writing the rules. Need help understanding a complex issue? A regulator has the name of a former colleague now working as a lobbyist in an e-mail address book. Want to share an industry point of view with a rule-maker? Odds are a lobbyist knows whom to call to get a few minutes of face time.

At the Naked Capitalism website, Yves Smith served up some more negative reactions to the bill, along with her own cutting commentary:

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.

The only two measures I see as genuine accomplishments, the Audit the Fed provisions, and the creation of a consumer financial product bureau, do not address systemic risks. And the consumer protection authority was substantially watered down. Recall a crucial provision, that banks be required to offer plain vanilla variants of products, was axed early on.

So there you have it. 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.

American capitalism, asset bubble, Audit the Fed, bank bailout, banking crisis, banking lobby, Barack Obama, blog, BP, centrist, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, conservative, consumer financial protection, credit default swaps, crony capitalism, de minimus exemption, Democrat, Democratic Party, Democrats, derivatives crisis, Dimon Dog, Dylan Ratigan, economic crisis, economic meltdown, economics, economists, equities markets, excessive leverage, FCIC, FDIC, Federal Deposit Insurance Corporation, Federal Reserve, financial crisis, Financial Crisis Inquiry Commission, financial meltdown, financial reform, Financial Reform Bill Exposed As Hoax, Forbes, Goldman Sachs, government guarantees, huge financial institutions, insolvent banks, investment banks, Jamie Dimon, Jim Jubak, John Burke, John T Burke Jr, JPMorgan Chase, Kaufman-Brown amendment, Kool-Aid drinkers, Lev Is The Drug, liberal, Lloyd Bankfiend, Lloyd Blankfein, lobbyists, moral hazard, mortgage-backed securities, msn, Naked Capitalism, New York Stock Exchange, News, NYSE, Obama Administration, Obama Presidency, Opinion, Political, Politics, President of the United States, prop trading ban, proprietary trading, regulatory capture, Republican, Republican Party, Robert Lenzner, SEC, securities, Securities and Exchange Commission, socialized loss and privatized gain, stock markets, systemic risk, systemic risk regulator, taxpayer subsidies to investment banks, taxpayers, TBTF, the center lane, the economy, The White House, thecenterlane, too big to fail, toxic assets, transparency, Treasury Department, troubled assets, Tyler Durden, United States Senate, United States Treasury, unregulated derivatives, Volcker Rule, Wall Street, Wall Street lobbyists, Wall Street meltdown, wealth transfer, welfare for the rich, Yves Smith, Zero Hedge, zombie banks

Demolition Derby

June 24th, 2010 Posted in Uncategorized

Jun, 24 2010

Comments Off

June 24, 2010

They’re at the starting line, getting ready to trash the economy and turn our “great recession” into a full-on Great Depression II (to steal an expression from Paul Farrell). Barry Ritholtz calls them the “deficit chicken hawks”. The Reformed Broker recently wrote a clever piece which incorporated a moniker coined by Mark Thoma, the “Austerians”, in reference to that same (deficit chicken hawk) group. The Reformed Broker described them this way:

. . . this gang has found a sudden (upcoming election-related) pang of concern over deficits and our ability to finance them. Critics say the Austerians’ premature tightness will send the economy off a cliff, a la the 1930’s.

Count me among those who believe that the Austerians are about to send the economy off a cliff – or as I see it: into a Demolition Derby. The first smash-up in this derby was to sabotage any potential recovery in the job market. Economist Scott Brown made this observation at the Seeking Alpha website:

One issue in deficit spending is deciding how much is enough to carry us through. Removing fiscal stimulus too soon risks derailing the recovery. Anti-deficit sentiment has already hampered a push for further stimulus to support job growth. Across the Atlantic, austerity moves threaten to dampen European economic growth in 2011. Long term, deficit reduction is important, but short term, it’s just foolish.

The second event in the Demolition Derby is to deny the extension of unemployment benefits. Because the unemployed don’t have any money to bribe legislators, they make a great target. David Herszenhorn of The New York Times discussed the despair expressed by Senator Patty Murray of Washington after the Senate’s failure to pass legislation extending unemployment compensation:

“This is a critical piece of legislation for thousands of families in our country, who want to know whether their United States Senate and Congress is on their side or is going to turn their back on them, right at a critical time when our economy is just starting to get around the corner,” Mrs. Murray said.

The deficit chicken hawk group isn’t just from the Republican side of the aisle. You can count Democrat Ben Nelson of Nebraska and Joe “The Tool” Lieberman among their ranks.

David Leonhardt of The New York Times lamented Fed chairman Ben Bernanke’s preference for maintaining “the markets’ confidence in Washington” at the expense of the unemployed:

Look around at the American economy today. Unemployment is 9.7 percent. Inflation in recent months has been zero. States are cutting their budgets. Congress is balking at spending the money to prevent state layoffs. The Fed is standing pat, too. Bond investors, fickle as they may be, show no signs of panicking.

Which seems to be the greater risk: too much action or too little?

The Demolition Derby is not limited to exacerbating the unemployment crisis. It involves sabotaging the economic recovery as well. In my last posting, I discussed a recent report by Comstock Partners, highlighting ten reasons why the so-called economic rebound from the financial crisis has been quite weak. The report’s conclusion emphasized the necessity of additional fiscal stimulus:

The data cited here cover the major indicators of economic activity, and they paint a picture of an economy that has moved up, but only from extremely depressed numbers to a point where they are less depressed. And keep in mind that this is the result of the most massive monetary and fiscal stimulus ever applied to a major economy. In our view the ability of the economy to undergo a sustained recovery without continued massive help is still questionable.

In a recent essay, John Mauldin provided a detailed explanation of how premature deficit reduction efforts can impair economic recovery:

In the US, we must start to get our fiscal house in order. But if we cut the deficit by 2% of GDP a year, that is going to be a drag on growth in what I think is going to be a slow growth environment to begin with. If you raise taxes by 1% combined with 1% cuts (of GDP) that will have a minimum effect of reducing GDP by around 2% initially. And when you combine those cuts at the national level with tax increases and spending cuts of more than 1% of GDP at state and local levels you have even further drags on growth.

Those who accept Robert Prechter’s Elliott Wave Theory for analyzing stock market charts to make predictions of long-term financial trends, already see it coming: a cataclysmic crash. As Peter Brimelow recently discussed at MarketWatch, Prechter expects to see the Dow Jones Industrial Average to drop below 1,000:

The clearest statement comes from the Elliott Wave Theorist, discussing a numerological technical theory with which it supplements the Wave Theory’s complex patterns: “The only way for the developing configuration to satisfy a perfect set of Fibonacci time relationships is for the stock market to fall over the next six years and bottom in 2016.”

* * *

There will be a short-term rally at some point, thinks Prechter, but it will be a trap: “The 7.25-year and 20-year cycles are both scheduled to top in 2012, suggesting that 2012 will mark the last vestiges of self-destructive hope. Then the final years of decline will usher in capitulation and finally despair.”

So it is written. The Demolition Derby shall end in disaster.

Anti-deficit sentiment, asset bubble, Austerians, austerity, bank bailout, bank stocks, banking crisis, Barack Obama, Barry Ritholtz, Ben Bernanke, blog, centrist, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, conservative, credit default swaps, crony capitalism, David Herszenhorn, David Leonhardt, deficit chicken hawks, deficit spending, deficits, Democrat, Democratic Party, Democrats, Demolition Derby, derivatives crisis, economic crisis, economic meltdown, economics, Economist Scott Brown, economists, Elliott Wave Theory, equities markets, Federal Reserve, financial crisis, financial meltdown, financial reform, fiscal stimulus, GDP, Goldman Sachs, government guarantees, Great Depression II, great recession, insolvent banks, investment banks, job growth, Joe The Tool Lieberman, John Burke, John Mauldin, John T Burke Jr, liberal, lobbyists, Mark Thoma, MarketWatch, moral hazard, New York Stock Exchange, New York Times, News, NYSE, Obama Administration, Obama Presidency, Opinion, Paul Farrell, Peter Brimelow, Political, Politics, premature deficit reduction efforts, President of the United States, regulatory capture, Republican, Republican Party, Robert Prechter, securities, Seeking Alpha, Senator Ben Nelson, Senator Patty Murray, socialized loss and privatized gain, stock markets, systemic risk, taxpayer subsidies to investment banks, taxpayers, the center lane, the economy, The Reformed Broker, The White House, thecenterlane, too big to fail, Treasury Department, unemployment benefits, unemployment crisis, United States Senate, United States Treasury, Wall Street, Wall Street meltdown, wealth transfer, welfare for the rich

Still Wrong After All These Years

June 21st, 2010 Posted in Uncategorized

Jun, 21 2010

Comments Off

June 21, 2010

I’m quite surprised by the fact that people continue to pay serious attention to the musings of Alan Greenspan. On June 18, The Wall Street Journal saw fit to publish an opinion piece by the man referred to as “The Maestro” (although – these days – that expression is commonly used in sarcasm). The former Fed chairman expounded that recent attempts to rein in the federal budget are coming “none too soon”. Near the end of the article, Greenspan made the statement that will earn him a nomination for TheCenterLane.com’s Jackass of the Year Award:

I believe the fears of budget contraction inducing a renewed decline of economic activity are misplaced.

John Mauldin recently provided us with a thorough explanation of why Greenspan’s statement is wrong:

There are loud calls in the US and elsewhere for more fiscal constraints. I am part of that call. Fiscal deficits of 10% of GDP is a prescription for disaster. As we have discussed in previous letters, the book by Rogoff and Reinhart (This Time is Different) clearly shows that at some point, bond investors start to ask for higher rates and then the interest rate becomes a spiral. Think of Greece. So, not dealing with the deficit is simply creating a future crisis even worse than the one we just had.

But cutting the deficit too fast could also throw the country back in a recession. There has to be a balance.

* * *

That deficit reduction will also reduce GDP. That means you collect less taxes which makes the deficits worse which means you have to make more cuts than planned which means lower tax receipts which means etc. Ireland is working hard to reduce its deficits but their GDP has dropped by almost 20%! Latvia and Estonia have seen their nominal GDP drop by almost 30%! That can only be characterized as a depression for them.

Robert Reich’s refutation of Greenspan’s article was right on target:

Contrary to Greenspan, today’s debt is not being driven by new spending initiatives. It’s being driven by policies that Greenspan himself bears major responsibility for.

Greenspan supported George W. Bush’s gigantic tax cut in 2001 (that went mostly to the rich), and uttered no warnings about W’s subsequent spending frenzy on the military and a Medicare drug benefit (corporate welfare for Big Pharma) — all of which contributed massively to today’s debt. Greenspan also lowered short-term interest rates to zero in 2002 but refused to monitor what Wall Street was doing with all this free money. Years before that, he urged Congress to repeal the Glass-Steagall Act and he opposed oversight of derivative trading. All this contributed to Wall Street’s implosion in 2008 that led to massive bailout, and a huge contraction of the economy that required the stimulus package. These account for most of the rest of today’s debt.

If there’s a single American more responsible for today’s “federal debt explosion” than Alan Greenspan, I don’t know him.

But we can manage the Greenspan Debt if we get the U.S. economy growing again. The only way to do that when consumers can’t and won’t spend and when corporations won’t invest is for the federal government to pick up the slack.

This brings us back to my initial question of why anyone would still take Alan Greenspan seriously. As far back as April of 2008 – five months before the financial crisis hit the “meltdown” stage — Bernd Debusmann had this to say about The Maestro for Reuters, in a piece entitled, “Alan Greenspan, dented American idol”:

Instead of the fawning praise heaped on Greenspan when the economy was booming, there are now websites portraying him in dark colors. One site is called The Mess That Greenspan Made, another Greenspan’s Body Count. Greenspan’s memoirs, The Age of Turbulence, prompted hedge fund manager William Fleckenstein to write a book entitled Greenspan’s Bubbles, the Age of Ignorance at the Federal Reserve. It’s in its fourth printing.

The day after Greenspan’s essay appeared in The Wall Street Journal, Howard Gold provided us with this recap of Greenspan’s Fed chairmanship in an article for MarketWatch:

The Fed chairman’s hands-off stance helped the housing bubble morph into a full-blown financial crisis when hundreds of billions of dollars’ worth of collateralized debt obligations, credit default swaps, and other unregulated derivatives — backed by subprime mortgages and other dubious instruments — went up in smoke.

Highly leveraged banks that bet on those vehicles soon were insolvent, too, and the Fed, the U.S. Treasury and, of course, taxpayers had to foot the bill. We’re still paying.

But this was not just a case of unregulated markets run amok. Government policies clearly made things much worse — and here, too, Greenspan was the culprit.

The Fed’s manipulation of interest rates in the middle of the last decade laid the groundwork for the most fevered stage of the housing bubble. To this day, Greenspan, using heavy-duty statistical analysis, disputes the role his super-low federal funds rate played in encouraging risky behavior in housing and capital markets.

Among the harsh critiques of Greenspan’s career at the Fed, was Frederick Sheehan’s book, Panderer to Power. Ryan McMaken’s review of the book recently appeared at the LewRockwell.com website – with the title, “The Real Legacy of Alan Greenspan”. Here is some of what McMacken had to say:

. . . Panderer to Power is the story of an economist whose primary skill was self-promotion, and who in the end became increasingly divorced from economic reality. Even as early as April 2008 (before the bust was obvious to all), the L.A. Times, observing Greenspan’s post-retirement speaking tour, noted that “the unseemly, globe-trotting, money-grabbing, legacy-spinning, responsibility-denying tour of Alan Greenspan continues, as relentless as a bad toothache.”

* * *

Although Greenspan had always had a terrible record on perceiving trends in the economy, Sheehan’s story shows a Greenspan who becomes increasingly out to lunch with each passing year as he spun more and more outlandish theories about hidden profits and productivity in the economy that no one else could see. He spoke incessantly on topics like oil and technology while the bubbles grew larger and larger. And finally, in the end, he retired to the lecture circuit where he was forced to defend his tarnished record.

The ugly truth is that America has been in a bear market economy since 2000 (when “The Maestro” was still Fed chair). In stark contrast to what you’ve been hearing from the people on TV, the folks at Comstock Partners put together a list of ten compelling reasons why “the stock market is in a secular (long-term) downtrend that began in early 2000 and still has some time to go.” This essay is a “must read”. Further undermining Greenspan’s recent opinion piece was the conclusion reached in the Comstock article:

The data cited here cover the major indicators of economic activity, and they paint a picture of an economy that has moved up, but only from extremely depressed numbers to a point where they are less depressed. And keep in mind that this is the result of the most massive monetary and fiscal stimulus ever applied to a major economy. In our view the ability of the economy to undergo a sustained recovery without continued massive help is still questionable.

As always, Alan Greenspan is still wrong. Unfortunately, there are still too many people taking him seriously.

Alan Greenspan, American capitalism, asset bubble, bank bailout, banking crisis, banking lobby, Barack Obama, Bernd Debusmann, Bill Fleckenstein, blog, budget contraction, CDOs, centrist, collateralized debt obligations, Commentary, comprehensive bank bailout plan, Comstock Partners, conflict of interest, Congress, conservative, credit default swaps, crony capitalism, deficit reduction reduces GDP, Democrat, Democratic Party, Democrats, derivatives crisis, derivatives trading, economic crisis, economic meltdown, economic stimulus package, economics, economists, equities markets, Estonia, federal debt explosion, Federal Reserve, financial crisis, financial meltdown, financial reform, Frederick Sheehan, Glass-Steagall Act, government guarantees, Greenspans Body Count, Greenspans Bubbles, housing bubble, Howard Gold, huge financial institutions, insolvent banks, investment banks, Ireland, Jackass Of The Year Award, John Burke, John Mauldin, John T Burke Jr, Latvia, LewRockwell, liberal, lobbyists, MarketWatch, moral hazard, mortgage-backed securities, News, Obama Administration, Obama Presidency, Opinion, Panderer to Power, Political, Politics, President of the United States, recession, regulatory capture, Republican, Republican Party, Reuters, Robert Reich, Rogoff and Reinhart, Ryan McMaken, securities, socialized loss and privatized gain, Still Wrong After All These Years, stock markets, systemic risk, taxpayer subsidies to investment banks, taxpayers, The Age of Turbulence, the center lane, the economy, the Greenspan Debt, The Maestro, The Mess That Greenspan Made, The Real Legacy of Alan Greenspan, The White House, thecenterlane, This Time is Different, too big to fail, toxic assets, transparency, Treasury Department, troubled assets, United States Senate, United States Treasury, unregulated derivatives, Wall Street, Wall Street Journal, Wall Street meltdown, wealth transfer, welfare for the rich, William Fleckenstein, zombie banks

Ignoring The Root Cause

June 17th, 2010 Posted in Uncategorized

Jun, 17 2010

Comments Off

June 17, 2010

The predominant criticism of the so-called “financial reform” bill is its failure to address the problems caused by the existence of financial institutions considered “too big to fail”. In an essay entitled, “Creating the Next Crisis” economist Simon Johnson discussed the consequences of this legislative let-down:

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 in America,” a senior Treasury official said. “If we’d been for it, it probably would have happened. But we weren’t, so it didn’t.”

* * *

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.

One would assume that an important lesson learned from the 2008 financial crisis was the idea that a corporation shouldn’t be permitted to blackmail the country with threats that its own financial collapse would have such a dire impact on society-at-large that the corporation should be bailed out by the taxpayers. The resulting problem is called “moral hazard” because such businesses are encouraged to act irresponsibly by virtue of the certainty that they will be bailed out if their activities prove self-destructive.

Gonzalo Lira wrote a piece for the Naked Capitalism blog, explaining how the moral hazard resulting from the “too big to fail” doctrine is facilitating a state of corporate anarchy:

In a nutshell, in this era of corporate anarchy, corporations do not have to abide by any rules — none at all. Legal, moral, ethical, even financial rules are irrelevant. They have all been rescinded in the pursuit of profit — literally nothing else matters.

As a result, corporations currently exist in a state of almost pure anarchy — but an anarchy directly related to their size: The larger the corporation, the greater its absolute freedom to do and act as it pleases. That’s why so many medium-sized corporations are hell-bent on growth over profits: The biggest of them all, like BP and Goldman Sachs, live in a positively Hobbesian State of Nature, free to do as they please, with nary a consequence.

Good-old British Petroleum – the latest beneficiary of the “too big to fail doctrine” — can rely on its size to avoid any sanctions it considers unacceptable because too many “small people” might lose their jobs if BP can’t stay fat and happy. Gonzalo Lira’s analysis went a step further:

Worst of all, BP realizes that, if it finally cannot get a handle on the oil spill disaster, they can simply fob it off on the U.S. Government — in other words, the people of the United States will wind up cleaning BP’s mess. BP knows that no one will hold it accountable — BP knows that it will get away with it.

* * *

This era of corporate anarchy is reaching a crisis point — we can all sense it. Yet the leadership in the United States and Europe is making no effort to solve the root problem. Perhaps they don’t see the problem. Perhaps they are beholden to corporate masters. Whatever the case, in his speech, President Obama made ridiculous references to “clean energy” while ignoring the cause of the BP oil spill disaster, the cause of the financial crisis, the cause of the spiralling health-care costs — the corporate anarchy that underlines them all.

This era of corporate anarchy is wrecking the world — literally, if you’ve been tuning in to images of the oil billowing out a mile down in the Gulf of Mexico.

Mr. Lira discussed how a leadership void has been helping corporate anarchy overtake democratic capitalism:

Obama is a corporatist — he’s one of Them. So there’ll be more bullshit talk about “clean energy” and “energy independence”, while the root cause — corporate anarchy — is left undisturbed.

The failure of President Obama to take advantage of the opportunity to address this “root cause” in his Oval Office address concerning the Deepwater Horizon disaster, inspired Robert Reich to make this comment:

Whether it’s Wall Street or health insurers or oil companies, we are approaching a turning point. The top executives of powerful corporations are pursuing profits in ways that menace the nation. We have not seen the likes not since the late nineteenth century when the “robber barons” of finance, oil, and the giant trusts ran roughshod over America. Now, as then, they are using their wealth and influence to buy off legislators and intimidate the regions that depend on them for jobs. Now, as then, they are threatening the safety and security of our people.

One of my favorite commentators, Paul Farrell of MarketWatch, recently warned us about the consequences of allowing corporate anarchy to destroy democratic capitalism:

The rise of uncontrolled corporate greed killed the “Invisible Hand,” the “soul” of capitalism that Adam Smith saw in 1776 as a divine force serving “the common good.” Today the system has no moral compass. Wall Street’s insatiable greed has destroyed capitalism from within, turning America’s economy into a soulless zombie.

The “Invisible Hand” Adam Smith saw as essential to capitalism in “The Theory of Moral Sentiments” died in endless battles fought by 261,000 lobbyists each wanting a bigger piece of the $1.7 trillion federal budget pie plus favorable laws protecting, vesting and increasing the power and wealth of their special interest clients. Future historians will call this ideological battle replacing democracy the new “American Capitalists Anarchy.”

* * *

As a New York Times reviewer put it: Nations like “China and Russia are using what he calls ‘state capitalism’ to advance the interests of their companies at the expense of their American rivals.” Global pandemic?

Unfortunately while America wastes trillions to bail out inefficient too-stupid-to-fail banks, our competition is bankrolling healthy state-controlled corporations to destroy us . . .

If we ever reach the point when the watered-down “financial reform” bill finally becomes law, the taxpayers should insist that their government move on to address the “root cause” of corporate anarchy by taking up campaign finance reform. That should be one hell of a fight!

Adam Smith, American capitalism, bank bailout, banking lobby, Barack Obama, blog, BP, British Petroleum, Brown-Kaufman, campaign finance reform, centrist, Commentary, conflict of interest, Congress, conservative, corporate anarchy, Creating the Next Crisis, crony capitalism, Deepwater Horizon, Democrat, Democratic Party, Democrats, economic crisis, economics, economists, financial crisis, financial reform, Goldman Sachs, Gonzalo Lira, government guarantees, Ignoring The Root Cause, investment banks, Invisible Hand, John Burke, John T Burke Jr, liberal, lobbyists, MarketWatch, moral hazard, Naked Capitalism, News, Obama Administration, Obama Presidency, Opinion, Oval Office address, Paul Farrell, Political, Politics, President of the United States, regulatory capture, Republican, Republican Party, revolving door, robber barons, Robert Reich, SEC, securities, Securities and Exchange Commission, self-dealing insiders, Sherrod Brown, Simon Johnson, socialized loss and privatized gain, systemic risk, taxpayer subsidies to investment banks, taxpayers, Ted Kaufman, the center lane, the economy, The Theory of Moral Sentiments, The White House, thecenterlane, too big to fail, transparency, Treasury Department, United States Senate, United States Treasury, Volcker Rule, Wall Street, Wall Street lobbyists, wealth transfer, welfare for the rich

The Poisonous Bailout

June 10th, 2010 Posted in Uncategorized

Jun, 10 2010

Comments Off

June 10, 2010

The adults in the room have spoken. The Congressional Oversight Panel – headed by Harvard Law School professor Elizabeth Warren – created to oversee the TARP program, has just issued a report disclosing the ugly truth about the bailout of AIG:

The government’s actions in rescuing AIG continue to have a poisonous effect on the marketplace.

Note the present tense in that statement. Not only did the bailout have a poisonous effect on the marketplace at the time –it continues to have a poisonous effect on the marketplace. The 300-page report includes the reason why the AIG bailout continues to have this poisonous effect:

The AIG rescue demonstrated that Treasury and the Federal Reserve would commit taxpayers to pay any price and bear any burden to prevent the collapse of America‘s largest financial institutions and to assure repayment to the creditors doing business with them.

And that, dear readers, is precisely what the concept of “moral hazard” is all about. It is the reason why we should not continue to allow financial institutions to be “too big to fail”. Bad behavior by financial institutions is encouraged by the Federal Reserve and Treasury with assurance that any losses incurred as a result of that risky activity will be borne by the taxpayers rather than the reckless institutions. You might remember the pummeling Senator Jim Bunning gave Ben Bernanke during the Federal Reserve Chairman’s appearance before the Senate Banking Committee for Bernanke’s confirmation hearing on December 3, 2009:

. . . you have decided that just about every large bank, investment bank, insurance company, and even some industrial companies are too big to fail. Rather than making management, shareholders, and debt holders feel the consequences of their risk-taking, you bailed them out. In short, you are the definition of moral hazard.

With particular emphasis on the AIG bailout, this is what Senator Bunning said to Bernanke:

Even if all that were not true, the A.I.G. bailout alone is reason enough to send you back to Princeton. First you told us A.I.G. and its creditors had to be bailed out because they posed a systemic risk, largely because of the credit default swaps portfolio. Those credit default swaps, by the way, are over the counter derivatives that the Fed did not want regulated. Well, according to the TARP Inspector General, it turns out the Fed was not concerned about the financial condition of the credit default swaps partners when you decided to pay them off at par. In fact, the Inspector General makes it clear that no serious efforts were made to get the partners to take haircuts, and one bank’s offer to take a haircut was declined. I can only think of two possible reasons you would not make then-New York Fed President Geithner try to save the taxpayers some money by seriously negotiating or at least take up U.B.S. on their offer of a haircut. Sadly, those two reasons are incompetence or a desire to secretly funnel more money to a few select firms, most notably Goldman Sachs, Merrill Lynch, and a handful of large European banks.

Hugh Son of Bloomberg BusinessWeek explained how the Congressional Oversight Panel’s latest report does not have a particularly optimistic view of AIG’s ability to repay the bailout:

The bailout includes a $60 billion Fed credit line, an investment of as much as $69.8 billion from the Treasury Department and up to $52.5 billion to buy mortgage-linked assets owned or backed by the insurer through swaps or securities lending.

AIG owes about $26.6 billion on the credit line and $49 billion to the Treasury. The company returned to profit in the first quarter, posting net income of $1.45 billion.

‘Strong, Vibrant Company’

“I’m confident you’ll get your money, plus a profit,” AIG Chief Executive Officer Robert Benmosche told the panel in Washington on May 26. “We are a strong, vibrant company.”

The panel said in the report that the government’s prospects for recovering funds depends partly on the ability of AIG to find buyers for its units and on investors’ willingness to purchase shares if the Treasury Department sells its holdings. AIG turned over a stake of almost 80 percent as part of the bailout and the Treasury holds additional preferred shares from subsequent investments.

“While the potential for the Treasury to realize a positive return on its significant assistance to AIG has improved over the past 12 months, it still appears more likely than not that some loss is inevitable,” the panel said.

Simmi Aujla of the Politico reported on Elizabeth Warren’s contention that Treasury and Federal Reserve officials should have attempted to save AIG without using taxpayer money:

“The negotiations would have been difficult and they might have failed,” she said Wednesday in a conference call with reporters. “But the benefits of crafting a private or even a joint public-private solution were so superior to the cost of a complete government bailout that they should have been pursued as vigorously as humanly possible.”

The Treasury and Federal Reserve are now in “damage control” mode, issuing statements that basically reiterate Bernanke’s “panic” excuse referenced in the above-quoted remarks by Jim Bunning.

The release of this report is well-timed, considering the fact that the toothless, so-called “financial reform” bill is now going through the reconciliation stage. Now that Blanche Lincoln is officially the Democratic candidate to retain her Senate seat representing Arkansas – will the derivatives reform provisions disappear from the bill? In light of the information contained in the Congressional Oversight Panel’s report, a responsible – honest – government would not only crack down on derivatives trading but would also ban the trading of “naked” swaps. In other words: No betting on defaults if you don’t have a potential loss you are hedging – or as Phil Angelides explained it: No buying fire insurance on your neighbor’s house. Of course, we will probably never see such regulation enacted – until after he next financial crisis.

AIG, bank bailout, banking crisis, banking lobby, Barack Obama, Ben Bernanke, blog, Bloomberg BusinessWeek, centrist, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, Congressional Oversight Panel, conservative, credit default swaps, crony capitalism, Democrat, Democratic Party, Democrats, derivatives crisis, economic crisis, economic meltdown, economics, economists, Elizabeth Warren, Federal Reserve, financial crisis, financial reform, Financial Stability Plan, Goldman Sachs, government guarantees, Hugh Son, insolvent banks, investment banks, John Burke, John T Burke Jr, liberal, lobbyists, Merrill Lynch, moral hazard, mortgage-backed securities, naked credit default swaps, New York Fed, News, Obama Administration, Obama Presidency, Opinion, over-the-counter derivatives, Phil Angelides, Political, Politico, Politics, President of the United States, regulatory capture, Republican, Republican Party, Robert Benmosche, SEC, securities, Securities and Exchange Commission, Senate Banking Committee, Senator Jim Bunning, Simmi Aujla, socialized loss and privatized gain, systemic risk, TARP, TARP bailout, TARP Inspector General, taxpayer subsidies to investment banks, taxpayers, the center lane, the economy, The Poisonous Bailout, The White House, thecenterlane, Tim Geithner, too big to fail, toxic assets, transparency, Treasury Department, troubled assets, Troubled Assets Relief Program, United States Senate, United States Treasury, Wall Street, Wall Street lobbyists, wealth transfer, welfare for the rich, zombie banks

Living Up To A Title

June 7th, 2010 Posted in Uncategorized

Jun, 07 2010

Comments Off

June 7, 2010

It was back on April 9, 2009 – before President Obama had completed his third month in office – when I first referred to him as the “Disappointer-in-Chief”. I concluded that piece with this gloomy prediction:

If President Obama does not change course and deviate from the Geithner-Summers plan before it’s too late, his legacy will be a ten-year recession rather than a two-year recession without the PPIP. Worse yet, the toughest criticism and the most pressure against his administration are coming from people he has considered his supporters. At least he has the people at Fox News to provide some laughable “decoy” reports to keep his hard-core adversaries otherwise occupied.

Just two weeks earlier — on March 23, 2009 – I had been discussing the widespread apprehension over Obama’s planned bailout of the largest banks (the so-called “Financial Stability Plan” which later morphed into the PPIP). At that point, Frank Rich of The New York Times made a premature use of the term “Obama’s Katrina moment”.

With the arrival of Obama’s real “Katrina moment” — by way of the Deepwater Horizon blowout – we are again hearing a chorus of criticism directed against the Obama administration, not unlike what we heard during those first few months. Now that our new President has established a track record of bad decisions, let’s take a look at some reactions from people the Fox News will insist are loyal Obama supporters. First we had Maureen Dowd of The New York Times, who delivered a one-two punch to the man she has called “Barry” (when mad at him) on May 29 and June 1:

In the campaign, Obama’s fight flagged to the point that his donors openly upbraided him. In the Oval, he waited too long to express outrage and offer leadership on A.I.G., the banks, the bonuses, the job loss and mortgage fears, the Christmas underwear bomber, the death panel scare tactics, the ugly name-calling of Tea Party protesters.

Too often it feels as though Barry is watching from a balcony, reluctant to enter the fray until the clamor of the crowd forces him to come down. The pattern is perverse. The man whose presidency is rooted in his ability to inspire withholds that inspiration when it is most needed.

Ouch! If that weren’t enough, Ms. Dowd’s June 1 punch had to hurt:

This president has made it clear that he’s not comfortable outside whatever domain he’s defined. But unless he wants his story to be marred by a pattern of passivity, detachment, acquiescence and compromise, he’d better seize control of the story line of his White House years. Woe-is-me is not an attractive narrative.

Also at The New York Times, Frank Rich expressed his impatience with the President – now that the real “Katrina moment” has arrived:

We still want to believe that Obama is on our side, willing to fight those bad corporate actors who cut corners and gambled recklessly while regulators slept, Congress raked in contributions, and we got stuck with the wreckage and the bills. But his leadership style keeps sowing confusion about his loyalties, puncturing holes in the powerful tale he could tell.

* * *

No high-powered White House meetings or risk analyses were needed to discern how treacherous it was to trust BP this time. An intern could have figured it out. But the credulous attitude toward BP is no anomaly for the administration. Lloyd Blankfein of Goldman Sachs was praised by the president as a “savvy” businessman two months before the Securities and Exchange Commission sued Goldman. Well before then, there had been a flood of journalistic indicators that Goldman under Blankfein may have gamed the crash and the bailout.

It’s this misplaced trust in elites both outside the White House and within it that seems to prevent Obama from realizing the moment that history has handed to him. Americans are still seething at the bonus-grabbing titans of the bubble and at the public and private institutions that failed to police them. But rather than embrace a unifying vision that could ignite his presidency, Obama shies away from connecting the dots as forcefully and relentlessly as the facts and Americans’ anger demand.

Back on December 14, I pointed out how the so-called “race card” has not been a free pass for the Disappointer-in-Chief:

As we approach the conclusion of Obama’s first year in the White House, it has become apparent that the Disappointer-in-Chief has not only alienated the Democratic Party’s liberal base, but he has also let down a demographic he thought he could take for granted: the African-American voters. At this point, Obama has “transcended race” with his ability to dishearten loyal black voters just as deftly as he has chagrined loyal supporters from all ethnic groups.

The most recent example of this phenomenon appeared in the form of an opinion piece by Tony Norman of the Pittsburgh Post-Gazette. Here is some of what Mr. Norman had to say:

At a Memorial Day dinner I attended, there wasn’t just disappointment with Mr. Obama’s inability to find his inner Huey Long — there was an undercurrent of genuine anger.

It went far beyond the handling of the BP crisis. As far as anyone can tell, there isn’t much to distinguish Mr. Obama’s policies in Afghanistan and Iraq from his predecessor’s.

Beyond the Deepwater Horizon, Mr. Obama has been a disappointment on civil liberties, banking reform, military spending, the drug war, Middle East policy, immigration and the environment. Political gamesmanship and calculation of the rankest kind continue. Even his latest Supreme Court nominee shows every indication of being as colorless as the president has proven to be in recent months. It’s too much to expect this president to champion a progressive Supreme Court candidate.

Meanwhile, the corrupt culture of Wall Street continues to set the agenda, thanks to cowardly Democrats and nihilistic Republicans. Accountability is as much a dirty word for Mr. Obama as it was for President George W. Bush.

* * *

Honestly, other than the particularities of the historical record, it no longer makes sense to blame Mr. Bush for much when Mr. Obama has done little — other than improvise a less belligerent foreign policy — to distinguish himself from the 43rd president.

I won’t spoil the rest of Mr. Norman’s article. Just be sure to read it. (Hint: It includes some nice speculation about how the new President was likely pulled aside by some members of the plutocracy, who gave him “The Talk”.)

Meanwhile, the Presidential disappointments continue. It appears as though we are going to wait for God to stop the oil from gushing into the Gulf of Mexico. Since we have left it to God to do the wetlands protection and the clean-up, this shouldn’t be too surprising. I’m beginning to suspect that President Obama’s religious ideas are even more far-out than those of President Bush. – It’s just that President Obama doesn’t talk about them.

AIG, bank bailout, banking crisis, Barack Obama, blog, BP, centrist, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, conservative, credit default swaps, crony capitalism, Deepwater Horizon, Democrat, Democratic Party, Democrats, derivatives crisis, Disappointer-In-Chief, economic crisis, economics, economists, Federal Reserve, financial crisis, financial meltdown, financial reform, Financial Stability Plan, Frank Rich, Geithner-Summers plan, George W Bush, government guarantees, Gulf of Mexico, insolvent banks, investment banks, John Burke, John T Burke Jr, liberal, Living Up To A Title, Lloyd Blankfein, lobbyists, Maureen Dowd, moral hazard, New York Times, News, Obama Administration, Obama Presidency, Obamas Katrina Moment, Opinion, Pittsburgh Post-Gazette, Political, Politics, PPIP, President of the United States, regulatory capture, Republican, Republican Party, socialized loss and privatized gain, systemic risk, taxpayers, Tea Party, the center lane, the economy, The White House, thecenterlane, Tony Norman, too big to fail, transparency, Treasury Department, United States Senate, United States Treasury, Wall Street, wealth transfer, welfare for the rich, wetlands protection, zombie banks

Delaying A Tough Decision

June 3rd, 2010 Posted in Uncategorized

Jun, 03 2010

Comments Off

June 3, 2010

A recent article by David Lightman for the McClatchy Newspapers bemoaned the fact that the Senate took off for a ten-day break without voting on the “Jobs Bill” passed by the House of Representatives (H.R.4213). Mr. Lightman’s piece expressed particular concern about the fact that a summer jobs program for approximately 330,000 “at-risk youths” has been hanging in the balance between deficit distress and economic recovery efforts. Of particular concern is the fact that time is of the essence for keeping the youth jobs program alive for this summer:

The longer the wait, the less the program can reduce joblessness among the nation’s most vulnerable population. Unemployment among 16- to 19-year-olds was 25.4 percent in April.

“Summer’s only so long, and it is a summer youth program,” said Mark Mattke, the work force strategy and planning director at the Spokane Area Workforce Development Council. More than 5,700 people in Washington state got summer jobs through government programs last year.

Financial expert, Janet Tavakoli, recently wrote an essay for The Huffington Post, discussing the cause-and-effect relationship between hard economic times and the crime rate. With municipal budget cutbacks reducing the ranks of our nation’s law enforcement personnel, a failure to extend unemployment benefits, as provided by the Jobs Bill, could be a dangerous experiment. Ms. Tavakoli discussed how the current recession has precipitated an increase in Chicago’s street crime:

Last summer gang violence ruled the night at Leland and Sheridan, a neighborhood in the process of gentrifying.

In the upscale Lincoln Park area, just a little further south of this unrest, men alone at night were accosted by groups of three to six men and severely beaten, robbed, and hospitalized. Seven muggings occurred in a five-day period from July 30 to August 4, 2009.

This kind of activity was unusual for these areas of Chicago until last summer.

Current Escalating Violent Crime and Chicago’s Prime Lakefront Areas

Shootings are way up in Chicago, and ordinary citizens — along with shorthanded police — are angry. Chicago has a gun ban, yet on Wednesday, May 19, Thomas Wortham IV, a Chicago police officer and Iraq War veteran, was shot when four gang members attempted to steal the new motorcycle the officer had brought to show his father, a retired police officer. Shots were fired, and his father saw the skirmish, ran for his gun, and managed to get off a few rounds. Two gang members were shot while two sped away dragging his fallen son’s body some distance in the process.

Nine people were shot on Sunday night (May 24), and Chicago is currently in the grips of a massive crime wave that has overwhelmed our under funded police force.

Gangland violence and shootings now occur up and down Chicago’s lakefront.

* * *

This escalation and geographical spread of violence is new, and I believe it is related to our Great Recession and budget issues. I don’t believe that Chicago is alone in its budget problems. If new patterns in Recession-related-violence have not yet affected other major cities in the U.S. the way they have affected Chicago, they may affect them soon. It is also likely that crime is being underreported as crime-fighting budgets are cut.

Given the current momentum for deficit hawkishness, the Senate’s break before the vote on this bill could be advantageous. After all, the bill barely passed in the House. Our Senators need to carefully consider the consequences of the failure to pass this bill. David Leonhardt of The New York Times presented a reasoned argument to his readers from the Senate on June 1, recommending passage of the Jobs Bill:

It would still add about $54 billion to the deficit over the next decade. On the other hand, it could also do some good. Among other things, it would cut taxes for businesses, expand summer jobs programs and temporarily extend jobless benefits for some of today’s 15 million unemployed workers.

* * *

Including the jobs bill, the deficit is projected to grow to about $1.3 trillion next year (and that’s assuming the White House can persuade Congress to make some proposed spending cuts and repeal the Bush tax cuts for the affluent). To be at a level that economists consider sustainable, the deficit needs to be closer to $400 billion. Only then would normal economic growth be able to pay it off.

So Congress would need to find almost $900 billion in savings. By voting down the jobs bill, it would save more than $50 billion by 2015 and get 7 percent of the way to the goal. That’s not nothing. In a nutshell, it’s the case against the bill.

* * *

Of course, even if the bill is not very expensive, it is worth passing only if it will make a difference. And economists say it will.

Last year’s big stimulus program certainly did. The Congressional Budget Office estimates that 1.4 million to 3.4 million people now working would be unemployed were it not for the stimulus. Private economists have made similar estimates.

There are two arguments for more stimulus today. The first is that, however hopeful the economic signs, the risk of a double-dip recession remains. Financial crises often bring bumpy recoveries. The recent troubles in Europe surely won’t help.

The second argument is that the economy has a terribly long way to go before it can be considered healthy. Here is a sobering way to think about the situation: If the next four years were to bring job growth as fast as the job growth during the best four years of the 1990s boom — which isn’t likely — the unemployment rate would still be higher in 2014 than when the recession began in late 2007.

Voters may not like deficits, but they really do not like unemployment.

Looking at the problem this way makes the jobs bill seem like less of a tough call. Luckily, the country’s two big economic problems — the budget deficit and the job market — are not on the same timeline. The unemployment rate is near a 27-year high right now. Deficit reduction can wait a bit, given that lenders continue to show confidence in Washington’s ability to repay the debt.

Remember that by way of Maiden Lane III, “Turbo” Tim Geithner, as president of the New York Fed, gave away $30 billion of taxpayer money to the counterparties of AIG – even though most of them didn’t need it. A “clawback” of that money from those banks (including Goldman Sachs – a $19 billion recipient) could pay for more than half the cost of the Jobs Bill. If the $30 billion wasted on Maiden Lane III can be so easily forgotten – why not spend $54 billion to avoid a “double-dip” recession and a hellish increase in street crime?

AIG, bank bailout, banking crisis, Barack Obama, blog, centrist, Chicago street crime, Commentary, conflict of interest, Congress, Congressional Budget Office, conservative, crime rate, crony capitalism, David Leonhardt, David Lightman, Delaying A Tough Decision, Democrat, Democratic Party, Democrats, derivatives crisis, double-dip recession, economic crisis, economic stimulus, economics, economists, Federal Reserve, Federal Reserve of New York, financial crisis, financial reform, Goldman Sachs, government guarantees, HR 4213, Huffington Post, insolvent banks, investment banks, Janet Tavakoli, Jobs Bill, John Burke, John T Burke Jr, liberal, lobbyists, Maiden Lane III, McClatchy Newspapers, moral hazard, New York Fed, New York Times, News, Obama Administration, Obama Presidency, Opinion, Political, Politics, President of the United States, regulatory capture, Republican, Republican Party, SEC, Securities and Exchange Commission, socialized loss and privatized gain, systemic risk, taxpayer subsidies to investment banks, taxpayers, the center lane, the economy, The White House, thecenterlane, too big to fail, Treasury Department, Turbo Tim Geithner, United States Senate, United States Treasury, Wall Street, Wall Street lobbyists, wealth transfer, welfare for the rich

Your Sleazy Government At Work

May 31st, 2010 Posted in Uncategorized

May, 31 2010

Comments Off

May 31, 2010

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

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

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

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

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

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

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

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

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

* * *

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

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

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

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

Negligible progress, 3,000 pages notwithstanding.

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

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

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

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

AIG, Audit the Fed, bank bailout, bank stocks, banking crisis, banking lobby, Barack Obama, Barry Ritholtz, blog, campaign finance reform, centrist, Commentary, comprehensive bank bailout plan, conflict of interest, Congress, conservative, Countrywide Chris Dodd, credit default swaps, crony capitalism, Democrat, Democratic Party, Democrats, derivatives crisis, derivatives trading, economic crisis, economic meltdown, economics, economists, equities markets, FDIC, Federal Deposit Insurance Corporation, Federal Reserve, Federal Reserve Bank of Richmond, financial crisis, financial reform, front-runing, frontrunning, Goldman Sachs, government guarantees, Gretchen Morgenson, Gulf of Mexico oil rig disaster, Harry Reid, huge financial institutions, insolvent banks, investment banks, Jeffrey M Lacker, Jim Morin, John Burke, John T Burke Jr, JP Morgan Chase, jungle capitalism, kleptocracy, Lehman Brothers, liberal, lobbyists, Matt Taibbi, moral hazard, Morgan Stanley, mortgage-backed securities, New York Stock Exchange, New York Times, News, NYSE, Obama Administration, Obama Presidency, Opinion, Political, Politics, predatory lending, President of the United States, proprietary trading, regulatory capture, Republican, Republican Party, Rolling Stone, S 3217, SEC, SEC scandals, securities, Securities and Exchange Commission, self-dealing insiders, socialized loss and privatized gain, standardized derivatives, stock markets, swap execution facility, systemic risk, systemic risk regulator, TARP, TARP bailout, taxpayer subsidies to investment banks, taxpayers, The Big Picture, the center lane, the economy, the fishermen’s buzzkill, the little people, The Miami Herald, The White House, thecenterlane, too big to fail, Too Pig To Fail, transparency, Treasury Department, Troubled Assets Relief Program, United States Senate, United States Treasury, unscrupulous lenders, Wall Street, Wall Street lobbyists, Wall Street meltdown, wealth transfer, welfare for the rich, Your Sleazy Government At Work, zombie banks

TheCenterLane.com

© 2008 – 2024 John T. Burke, Jr.

NOAA Uses Human Canaries To Test Gulf Fish

What are sensory testers “sniffing” for?

Rare Glimpses Of Honesty And Sanity

Financial Reform Bill Exposed As Hoax

Demolition Derby

Still Wrong After All These Years

Ignoring The Root Cause

The Poisonous Bailout

Living Up To A Title

Delaying A Tough Decision

Your Sleazy Government At Work

Tip Jar

Recent Posts

Stock Market

Blogroll

Archives

About TheCenterLane.com