Demon Bankers

Why Bankers Love War

2010-03-01T06:12:00.000-08:00

http://www.opednews.com/articles/Why-Bankers-Love-War-by-Scott-Baker-100228-838.html

February 28, 2010
Why Bankers Love War
By Scott Baker

Bankers have ample money to fund wars.

War is profitable for Bankers. It's the best investment they can make.

Henry George recognized this 130 years ago (indeed, it was WWI that sapped the strength of the Georgist movement). Other writers, such as Mason Gaffney, and Stephen Zarlenga, and many, many others, recognize it today.

Think about it from the point of view of a business that exists solely to sell debt (banks). What could be better than to loan money that:
1. Is strictly to the best debtor in the land: the U.S. Government
2. Will continue to be borrowed until the war is "won" (or, better yet, in modern times, to fund an endless series of wars on terror, in different lands, needing different - and expensive - weapon systems)
3. Will be spent on things that go BOOM, and then have to be replaced, over and over and over.
4. Has virtually no limit on upward costs, due to technological advancements. Almost every major country is developing drones of its own, (see here, here, here, here) meaning we could soon be embroiled in drone wars, without all those "messy" dead and shattered young people cluttering up the airwaves and discouraging further war-making. Of course there'll continue to be dead civilians, but that's just collateral damage, you know. Then, there's the Terminator scenario, whereby the newly self-aware machines turn on their creators as they come to realize their creators are the truly violent ones...they will be right.

So, banks love war, unless it's their buildings and personnel that get hit, but maybe, just maybe, even that doesn't matter, since the Supreme Court tells us, in Citizens United, that Corporations are people too. So, why not have a war without any human involvement at all? Just faceless corporations, launching drone wars by proxy governments safely sheltered in underground bunkers, laying waste to the Earth, where the Expendables (my term for the 99% of humanity that takes no part in making wars) are just sitting there, waiting to be obliterated? Sounds like a plan.

Porter Stansberry: This is one of the biggest Wall Street frauds ever...

2010-02-27T14:56:00.000-08:00

http://www.thedailycrux.com/content/4177/Porter_Stansberry

Thursday, February 25, 2010

By Porter Stansberry in the S&A Digest:

One of the best lessons I've learned over my career as an investment analyst is the myth of excellent management or "great execution" is really just that – a myth.

When I see companies in troubled industries reporting quarter after quarter of great results, while all of their peers are getting killed, I know a fraud is going on. I remember in the early 2000s, WorldCom kept reporting profits when all of the other long-distance carriers were getting killed. I knew it couldn't last. And it didn't. WorldCom's accounting was revealed to be a fraud – the company was counting its network access costs as capital expenses. Once the real numbers came out, the company collapsed in what was the largest bankruptcy in American history at that point.

About three years ago, I saw Goldman Sachs reporting quarter after quarter of unbelievable results when all of the other investment banks were hurting. I spent a lot of time looking at its numbers – which didn't make any sense. It reminded me of Enron. It kept reporting bigger and bigger profits, but lost more money every year in cash. And its debt balances kept growing.

I wrote a lot about this in The Digest, but I never officially recommended shorting Goldman in my newsletter because I literally couldn't figure out how Goldman Sachs was doing it. I couldn't find the smoking gun... but I knew a giant fraud would be discovered there, eventually.

In October 2008, I figured out part of the big secret: Goldman had insured all of its subprime exposure via AIG. This allowed it to book huge profits on its subprime investments long before they were actually paid off because the bonds were insured. Of course, it was all a sham – AIG didn't have nearly enough money to pay off any of the insurance. (See the October issue of PSIA for more details.) A source close to the company even told me how big the exposure to AIG really was – $20 billion. That's roughly 100% of the profit Goldman claimed in 2006 and 2007, at the height of the credit bubble. Goldman completely denied my report and claimed it had zero exposure to AIG.

As was subsequently revealed in the spring of 2009, my report was right on the money. Goldman had roughly $20 billion in exposure to AIG and received roughly $14 billion of money the federal government used to bail out AIG.

But I completely missed one big part of the story... And once this fact becomes common knowledge, it will probably mean jail time for several leading Goldman executives and the end of the firm. What did I miss? The entire Goldman-AIG relationship was a complete sham. Let me explain...

Goldman eventually admitted it had insured roughly $20 billion worth of subprime CDOs with AIG and had major exposure to the firm. But the New York Federal Reserve and Goldman Sachs never revealed this critical fact: Goldman didn't merely buy insurance on a bunch of random subprime CDOs. It actually bought insurance on special CDOs it had put together and sold to its own clients. In other words, Goldman knew more about these CDOs than anyone else. Goldman bought insurance on these CDOs because it knew they'd collapse.

This is tantamount to building a house, planting a bomb in it, selling it to an unsuspecting buyer, and buying $20 billion worth of life insurance on the homeowner – who you know is going to die!

These facts all came to light because of research done by the office of Darrell Issa, the ranking Republican on the House Committee on Oversight and Government Reform. These new documents will certainly lead to a full investigation of the Goldman-AIG dealings and the subsequent $180 billion bailout led by the New York Federal Reserve. My bet? Heads will roll. If you own Goldman Sachs, you'd better sell.

The Great American Bank Robbery

2010-02-27T10:09:00.001-08:00

By Joseph Stiglitz, W. W. Norton & Company
Posted on February 27, 2010, Printed on February 27, 2010
http://www.alternet.org/story/145774/

The following is Part I of a two-part excerpt from Freefall: America, Free Markets, and the Sinking of the World Economy by Joseph Stiglitz ( W.W. Norton & Co., 2010). Read AlterNet's recent interview with Stiglitz by Zach Carter.

Bankruptcy is a key feature of capitalism. Firms sometimes are unable to repay what they owe creditors. Financial reorganization has become a fact of life in many industries. The United States is lucky in having a particularly effective way of giving firms a fresh start—Chapter 11 of the bankruptcy code, which has been used repeatedly, for example, by the airlines. Airplanes keep flying; jobs and assets are preserved. Shareholders typically lose everything, and bondholders become the new shareholders. Under new management, and without the burden of debt, the airline can go on. The government plays a limited role in these restructurings: bankruptcy courts make sure that all creditors are treated fairly and that management doesn't steal the assets of the firm for its own benefits.

Banks differ in one respect: the government has a stake because it insures deposits....The reason the government insures deposits is to preserve the stability of the financial system, which is important to preserving the stability of the economy. But if a bank gets into trouble, the basic procedure should be the same: shareholders lose everything; bondholders become the new shareholders. Often, the value of the bonds is sufficiently great that that is all that needs to be done. For instance, at the time of the bailout, Citibank, the largest American bank, with assets of $2 trillion, had some $350 billion of long-term bonds. Because there are no obligatory payments with equity, if there had been a debt-to-equity conversion, the bank wouldn’t have had to pay the billions and billions of dollars of interest on these bonds. Not having to pay out the billions of dollars of interest puts the bank in much better stead. In such an instance, the role of the government is little different from the oversight role the government plays in the bankruptcy of an ordinary firm.

Sometimes, though, the bank has been so badly managed that what is owed to depositors is greater than the assets of the bank. (This was the case for many of the banks in the savings and loan debacle in the late 1980s and in the current crisis.) Then the government has to come in to honor its commitments to depositors. The government becomes, in effect, the (possibly partial) owner, though typically it tries to sell the bank as soon as it can or find someone to take it over. Because the bankrupt bank has liabilities greater than its assets, the government typically has to pay the acquiring bank to do this, in effect filling the hole in the balance sheet. This process is called conservatorship. Usually the switch in ownership is so seamless that depositors and other customers wouldn't even know that something had happened unless they read about it in the press. Occasionally, when an appropriate suitor can’t be found quickly, the government runs the bank for a while. (The opponents of conservatorship tried to tarnish this traditional approach by calling it nationalization. Obama suggested that this wasn’t the American way. But he was wrong: conservatorship, including the possibility of temporary government ownership when all else failed, was the traditional approach; the massive government gifts to banks were what was unprecedented. Since even the banks that were taken over by the government were always eventually sold, some suggested that the process be called preprivatization.)

Long experience has taught that when banks are at risk of failure, their managers engage in behaviors that risk taxpayers losing even more money. The banks may, for instance, undertake big bets: if they win, they keep the proceeds; if they lose, so what? They would have died anyway. That's why there are laws saying that when a bank’s capital is low, it should be shut down or put under conservatorship. Bank regulators don't wait until all of the money is gone. They want to be sure that when a depositor puts his debit card into the ATM and it says, "insufficient funds," it's because there are insufficient funds in the account, not insufficient funds in the bank. When the regulators see that a bank has too little money, they put the bank on notice to get more capital, and if it can't, they take further action of the kind just described.

As the crisis of 2008 gained momentum, the government should have played by the rules of capitalism and forced a financial reorganization. Financial reorganizations—giving a fresh start—are not the end of the world. Indeed, they might represent the beginning of a new world, one in which incentives are better aligned and in which lending is rekindled. Had the government forced a financial restructuring of the banks in the way just described, there would have been little need for taxpayer money, or even further government involvement. Such a conversion increases the overall value of the firm because it reduces the likelihood of bankruptcy, thereby not only saving the high transaction costs of going through bankruptcy but also preserving the value of the ongoing concern. That means that if the shareholders are wiped out and the bondholders become the new "owners," the bondholders' long-term prospects are better than they were while the bank remained in limbo, when they were not sure whether it would survive and not sure of either the size or the terms of any government handout.

The bondholders involved in a restructuring would have gotten another gift, at least according to the banks own logic. The bankers claimed that the market was underestimating the true value of the mortgages on their books (and other bank assets). That may have been the case—or it may not have been. If it is not, it is totally unreasonable to make taxpayers bear the cost of the banks' mistake, but if the assets were really worth as much as the bankers said, then the bondholders would get the upside.

The Obama administration has argued that the big banks are not only too big to fail but also too big to be financially restructured (or, as I refer to it later, "too big to be resolved"), too big to play by the ordinary rules of capitalism. Being too big to be financially restructured means that if the bank is on the brink of failure, there is but one source of money: the taxpayer. And under this novel and unproven doctrine, hundreds of billions have been poured into the financial system.

If it is true that America's biggest banks are too big to be "resolved," this has profound implications for our banking system going forward—implications the administration so far has refused to own up to. If, for instance, bondholders are in effect guaranteed because these institutions are too big to be financially restructured, then the market economy can exert no effective discipline on the banks. They get access to cheaper capital than they should, because those providing the capital know that the taxpayers will pick up any losses. If the government is providing a guarantee, whether explicit or implicit, the banks aren’t bearing all the risks associated with each decision they make—the risks borne by markets (shareholders, bondholders) are less than those borne by society as a whole, and so resources will go in the wrong place. Because too-big-to-be-restructured banks have access to funds at lower interest rates than they should, the whole capital market is distorted. They grow at the expense of their smaller rivals, who do not have this guarantee. They can easily come to dominate the financial system, not through greater prowess and ingenuity but because of the tacit government support. It should be clear: these too-big-to-be-restructured banks cannot operate as ordinary market-based banks.

I actually think that all of this discussion about too-big-to-restructured banks was just a ruse. It was a ploy that worked, based on fear-mongering. Just as Bush used 9/11 and the fears of terrorism to justify so much of what he did, the Treasury under both Bush and Obama used 9/15—the day that Lehman collapsed—and the fears of another meltdown as a tool to extract as much as possible for the banks and the bankers that had brought the world to the brink of economic ruin.

The argument is that, if only the Fed and Treasury had rescued Lehman Brothers, the whole crisis would have been avoided. The implication—seemingly taken on board by the Obama administration—is, when in doubt, bail out, and massively so. To skimp is to be penny wise and pound foolish.

But that is the wrong lesson to learn from the Lehman episode. The notion that if only Lehman Brothers had been rescued all would have been fine is sheer nonsense. Lehman Brothers was a consequence, not a cause: it was the consequence of flawed lending practices and inadequate oversight by regulators. Whether Lehman Brothers had or had not been bailed out, the global economy was headed for difficulties. Prior to the crisis, as I have noted, the global economy had been supported by the bubble and excessive borrowing. That game is over—and was already over well before Lehman's collapse. The collapse almost surely accelerated the whole process of deleveraging; it brought out into the open the long-festering problems, the fact that the banks didn’t know their net worth and knew that accordingly they couldn’t know that of any other firm to whom they might lend. A more orderly process would have imposed fewer costs in the short run, but "counterfactual history" is always problematic.

There are those who believe that it is better to take one’s medicine and be done with it, that a slow unwinding of the excesses would last years longer, with even greater costs. Perhaps, on the other hand, the slow recapitalization of the banks would have occurred faster than the losses would have become apparent. In this view, papering over the losses with dishonest accounting (as in this crisis, as well as in the savings and loan debacle of the 1980s) would be doing more than just providing symptomatic relief. Lowering the fever may actually help in the recovery. A third view holds that Lehman’s collapse actually saved the entire financial system: without it, it would have been difficult to galvanize the political support required to bail out the banks. (It was hard enough to do so after its collapse.)

Even if one agrees that letting Lehman Brothers fail was a mistake, there are many choices between the blank-check approach to saving the banks pursued by the Bush and Obama administrations after September 15 and the approach of Hank Paulson, Ben Bernanke, and Tim Geithner of simply shutting down Lehman Brothers and praying that everything will work out in the end.

The government was obligated to save depositors, but that didn't mean it had to provide taxpayer money to also save bondholders and shareholders. As noted earlier, standard procedures would have meant that the institution be saved and the shareholders wiped out, with the bondholders becoming the new shareholders. Lehman had no insured depositors; it was an investment bank. But it had something almost equivalent—it borrowed short-term money from the "market" through commercial paper held by money market funds, which acted much like banks. (One can even write checks on these accounts.) That’s why the part of the financial system involving money markets and investment banks is often called the shadow banking system. It arose, in part, to circumvent the regulations imposed on the real banking system—to ensure its safety and stability. Lehman’s collapse induced a run on the shadow banking system, much as there used to be runs on the real banking system before deposit insurance was provided; to stop the run, the government provided insurance to the shadow banking system.

Those opposed to financial restructuring (conservatorship) for the banks that are in trouble say that if the bondholders are not fully protected, a bank's remaining creditors—those providing short-term funds without a government guarantee—will flee if a restructuring appears imminent. But such a conclusion defies economic logic. If these creditors are rational, they would realize that they benefit enormously from the greater stability of the firm provided by conservatorship and the debt-to-equity conversion. If they were willing to keep their funds in the bank before, they should be even more willing to do so now. And if the government has no confidence in the rationality of these supposedly smart financiers, they could provide a guarantee, though they should charge a premium for it. In the end, the Bush and Obama administrations not only bailed out the shareholders but also provided guarantees. The guarantees effectively eviscerated the argument for the generous treatment of shareholders and long-term bondholders.

Under financial restructuring, there are two big losers. The executives of the banks will almost surely go, and they will be unhappy. The shareholders too will be unhappy, because they will have lost everything. But that is the nature of risk-taking in capitalism—the only justification for the above-normal returns that they enjoyed during the boom is the risk of a loss.

Joseph Stiglitz, a Nobel laureate, is a professor of economics at Columbia University.

© 2010 W. W. Norton & Company All rights reserved.
View this story online at: http://www.alternet.org/story/145774/

Solution to the Credit Crisis? The Campaign for State-owned Banks in the US

2010-02-27T07:37:00.000-08:00

http://www.webofdebt.com/articles/campaigning_state-owned_banks.php

Ellen Brown
Web of Debt
Wed, 17 Feb 2010 13:33 EST

While bank bailouts fatten Wall Street, states continue to battle the credit crisis. In the search for innovative solutions, some political candidates are proposing that states generate their own credit by setting up their own banks.

State budgets for 2010 face the largest shortfalls on record, totaling $194 billion or 28 percent of state budgets; and 2011 is expected to be worse. Unemployment has already officially hit 10 percent, and many economists expect it to rise higher.

Continued high unemployment will keep state income tax receipts at low levels and increase demand for Medicaid and other essential services states provide. The existing alternatives are spending cuts or tax increases, but both will just serve to make the downturn deeper. When states cut spending, they lay off employees, cancel contracts with vendors, eliminate or lower payments to businesses and nonprofit organizations that provide direct services, and cut benefit payments to individuals. The result is a reduction in overall demand. Tax increases also remove demand, by reducing the amount of money people have to spend.

Amanda Paulson, writing in The Christian Science Monitor, quotes Arturo Pérez, fiscal analyst with the National Conference of State Legislatures, which released its survey of state budget situations in December:
"Unless you're North Dakota, you're probably a state that has had some degree of difficulty or crisis involving finances. It's the worst situation states have faced in decades, perhaps going as far back as the Great Depression in some states."

"Unless you're North Dakota" - a state with a sizeable budget surplus, and the only state that is adding jobs when other states are losing them. A poll reported on February 13 ranked that weather-challenged state first in the country for citizen satisfaction with their standard of living. North Dakota's affluence has been attributed to oil, but other states with oil are in deep financial trouble. The big drop in oil and natural gas prices propelled Oklahoma into a budget gap that is 18.5% of its general-fund budget. California is also resource-rich, with a $2 trillion economy; yet it has a worse credit rating than Greece. So what is so special about North Dakota? The answer seems to be that it is the only state in the union that owns its own bank. It doesn't have to rely on a recalcitrant Wall Street for credit. It makes its own.
Candidates Across the Political Spectrum Pick Up on the Public Bank Model

In the quest to find ways to divorce the well-being of their states from the financial sector, a growing number of candidates are picking up on the public bank alternative. Florida, Illinois, Oregon, Massachusetts, Idaho and California all have candidates whose platforms contain this proposed solution to the credit crisis.

A publicly-owned bank has also been proposed on the federal level. Nationalizing the Federal Reserve (which is not actually federal but is owned by a consortium of private banks) was advocated by 2008 Presidential candidates Dennis Kucinich, a Democrat, and Cynthia McKinney, the Green Party candidate. In 2009, Nobel laureate Joseph Stiglitz said the government would have been better off funding a federally-owned bank than doling out trillions of dollars to private investment banks and CEOs who speculated their way into bankruptcy. Speaking at the New York Society for Ethical Culture on March 6, 2009, he said:
"If we had used the $700 billion to create a new financial institution, allowed it to lever 10 to 1, which is very modest compared to the 30 to 1 that we were doing, 10 to 1 would have generated $7 trillion of new lending capacity, far in excess of what our country needs. So the issue here is not about lending. It's really about saving the bankers. And what we confused was saving the banks versus saving the bankers and their shareholders."

But nationalizing the Federal Reserve faces powerful opponents in Congress. Meanwhile, on the state level the public bank concept is gaining ground, attracting proponents across the political spectrum, including Democrats, Republicans and Greens. The issue transcends party lines. In North Dakota, a Republican state, the state-owned bank was inaugurated by a political party appropriately called the "Non-Partisan League."

Oregon: The Bankers' Bank Model

In Oregon, Bill Bradbury has included a state bank platform in his bid for governor. Bradbury, a Democrat, was formerly secretary of state and has been endorsed by former Vice President Al Gore. His website declares:
"It is time to put Oregonians back to work. It is also time to declare economic sovereignty from the multi-national banks that in large part are responsible for much of our current economic crisis. We can achieve these two goals by creating our own bank."

The Oregonian, Oregon's largest newspaper, reported that Bradbury plans to deposit tax revenues in the public-interest bank, keeping Oregon's money in Oregon. The bank would then lend the money to get the economy going again, targeting small and medium-sized businesses. Interest would be poured back into the state through more loans to start-up businesses, agriculture, and other key sectors. Currently, Oregon deposits hundreds of millions of dollars in tax revenues into large out-of-state banks, siphoning the money off from productive in-state uses. Many of these banks are the very banks needing federal bailouts to keep from failing in 2008, after years of handing out risky mortgage loans. These banks have now grown tight-fisted with Main Street borrowers, making Bradbury's plan to get money flowing again especially appealing to Oregonian voters.

Bradbury uses the Bank of North Dakota (BND) as his model. Like the BND, the Bank of Oregon would return a dividend to the state based on its earnings, while creating jobs and stimulating the economy through lending. The state bank would not replace private banking institutions but would partner with them, particularly with community banks, providing them with new customers and helping them provide new services. To assure the state bank's independence from existing financial powers, Bradbury proposes that a board of directors appointed by Oregon's Senate should govern the bank, while taking advice from an advisory committee of experts.

Idaho: Keeping State Assets in the State

In Idaho, James Stivers, a Republican candidate for the State Senate, has also proposed a state bank to fill state coffers and protect the local economy. In the first indication of a political shift among grassroots Republicans, Stivers swept a closed-ballot preference poll at the GOP District 2 Central Committee meeting in Coeur d'Alene on February 13, winning the non-binding poll 10-0. Stivers declares:
"An important part of sovereignty is the monetary authority. Currently, banks are allowed to multiply many times over the tax receipts deposited in their institutions. This special privilege is partly responsible for the 'sucking sound' in our local economies, as regional banks send their assets to central banks that are playing the derivatives markets of the world.

"A state bank would restore this privilege to the people in a public trust and would give us the opportunity to back our deposits with the wealth from our public lands."

Stivers sees the bank as a way to facilitate small business startups, end the ability of private banks to cream profits from the public treasury, protect key budget items, and stave off excessive influence from the federal government. He suggests the novel approach of expanding the role of Idaho's Bond Bank authority into a full-fledged state bank. The current banking system, he says, causes inflation, one of the "greatest detriments to a living wage":
"Inflation is caused by the secret tax of the banking industry in which lenders use the multiplier effect to the benefit of their cronies. This secret tax takes the form of a decline in the value of the dollar and results in higher prices. Wages never keep up with this process because its very purpose is to extract wealth from the wage earner to support the privileged classes who curry the favor of lenders. A state bank would restore this privilege to the people in a public trust and would give us the opportunity to back our deposits with the wealth from our public lands."
Illinois: Using a State-owned Bank to Fund Infrastructure

In Illinois, Green Party gubernatorial candidate Rich Whitney has other ideas for a state-owned bank. Illinois is listed by the Pew Center for the States as one of nine states confronting historic budget problems. In a recent response to the governor's State of the State Address, Whitney said:
"I am the only candidate in this race who proposes to fund public improvements, and promote economic health, without any further tax increases, through the establishment of a state bank, a progressive idea that North Dakota adopted years ago, and that has helped keep that state debt-free even in these troubled economic times. Instead of going into more and more debt, to further enrich private banks, we should be using our tax revenue to further invest in our own State and its people, for the enrichment of our own economy."

The bank would use tax revenues and pension contributions as the financial base to expand credit where it is most needed. Illinois' bank would borrow from the Federal Reserve at the same 1 percent rate as commercial banks. Once the budget was balanced, Whitney's top priorities would be to use the new money to modernize energy infrastructure and promote solar and wind power. To achieve this, property owners of land where wind and solar generators could be located would be lent money through the state bank at a minimal 1 percent interest rate. To secure repayment, Whitney would require utilities to buy power from the solar and wind-based producers at a premium rate. One option would then be to require part of this premium to be paid to the state bank until the loan is returned. This arrangement, says Whitney, would create a win-win situation:
"The bank is paid back. The homeowner, farmer or business investing in solar or wind generation realizes immediate savings on energy costs and in many cases will go from being a net consumer to a net producer of energy. Their greater income will further stimulate the economy. The utilities will have to pay the cost of the premium rate but in the long run will realize the benefits of having a greater, stable, more diversified and decentralized energy grid, ultimately cheaper in the face of rising fossil fuel prices. As economies of scale are realized in wind and solar power generation, the costs will fall, as will the necessary premium rate. And we all benefit from the reduction in greenhouse gas emissions."
Florida: The Commercial Bank Model

Economist and author Farid Khavari, a Democratic gubernatorial candidate in Florida, proposes a state-owned bank that would lend directly to borrowers. The Bank of North Dakota usually uses a "lead lender" such as a bank, savings and loan company, or credit union rather than doing commercial lending directly. Dr. Khavari maintains that the Bank of the State of Florida could be launched at no cost to taxpayers by using the state's assets as the reserves for making loans, employing the same fractional reserve lending rules used by private banks today. In this way, he says, the bank could drive an "economic miracle" in Florida, instigating massive job creation, cutting costs in half or more, providing low interest financing to homeowners and businesses, and improving teacher salaries and care for veterans and the elderly, while at the same reducing taxes. He explains:
"The economy is collapsing due to lack of demand. The economy needs money, but the banks are cutting credit, and then sucking all the cash out of the economy by raising interest rates to make sure no one has any cash left at the end of the month. The cost of interest is built into the cost of everything. People already work ten years of their lives just to pay interest in one form or another. The Bank of the State of Florida will end that for Floridians. And this model will work for every state. . . .

"We can pay 6% interest on savings. Using the same fractional reserve rules as all banks, we can create $900 of new money through loans for every $100 in deposits. We can loan that $900 in the form of 2% fixed rate 15-year mortgages, for example, and the state can earn $12 every year for every $100 in deposits. That means Floridians can save tens of billions of dollars per year while the state earns billions making it possible for them.

"State and local government budgets will balance without higher taxes when the BSF cuts interest costs. 6% BSF credit cards will save people billions per month, money that stays in Florida instead of going to the big banks - and the state will make huge profits on that, too. Saving billions in interest costs will create millions of jobs without subsidies just by keeping those billions circulating in Florida. Eventually the state will earn enough to reduce and eliminate state and local taxes while every Floridian has economic security in a recession-proof Florida."

The Federal Reserve states on its website that the banking system as a whole leverages $100 in deposits into $900 in loans, but whether a single bank can do it alone has been challenged. Critics say that while banks do create money as loans, they have to replace the deposits when the checks leave the bank in order for the checks to clear. How this all works is a bit complicated and will be the subject of another article, but suffice it to say here in response that if a bank does not have the deposits to cover its outgoing checks, it borrows from the interbank lending market at very low rates, or issues commercial paper or CDs; and the state bank could do the same thing. It would not be fighting with the other banks for old deposits.

Loans create new deposits, which can be borrowed back from the pool of "excess deposits" thereby created. Ninety-seven percent of the money supply has been created by commercial banks by turning loans into deposits, but that credit machine has frozen up. A state bank could get it flowing again.

California: Catching the Wave

California leads the nation in the sheer size of its budget gap. It too now has a gubernatorial candidate proposing to alleviate the state's credit woes with a state-owned bank. Running on the Green Party ticket, Laura Wells is a former financial analyst who received 420,000 votes in her 2002 bid for State Controller, more than any other Green Party candidate has earned in a partisan statewide race. According to her website:
"Rather than drowning in debt and begging Wall Street for loans, California can institute a State Bank that invests in California's infrastructure, and future generations."

She stated in a comment, "A state bank for California is part of my platform as a candidate for the Green Party nomination for Governor. I ran for State Controller to 'Follow the Money.' Now, we need to Fix the Money. A state bank would keep California's wealth in the state. Rather than invest in Wall Street (we've hit the wall on that one) we can invest in our infrastructure and our future generations."

Legislative Proposals

It is not just political hopefuls who are exploring the public bank option. Therese Murray currently presides over the Massachusetts State Senate. She has introduced legislation that would study the formation of a state-owned bank with the principal aim of boosting job creation in the state. Massachusetts now faces a 9.4 percent unemployment rate. "It wouldn't be in competition with our small community banks," she says. "We've got to free up some credit, and mortgage companies and banks have got to do a better job of allowing people to redo their mortgages."

In Virginia, Congressman Bob Marshall, a Republican, introduced a bill in January to study whether to establish a bank that was owned, run, and controlled by the state. However, the plan was tabled in committee.

On February 16, the front page of the Huffington Post featured an article on the Bank of North Dakota and the precedent it sets for financially-strapped states. Besides political candidates promoting this option, it noted that a Washington State legislator and a Vermont House committee were exploring it.

North Dakota hit the Wall Street wall in 1919, when the Bank of North Dakota was established by the state legislature specifically to free farmers and small businessmen from the clutches of out-of-state bankers. For over 90 years, it has demonstrated the success of the public banking model. Other credit-choked states are finally taking notice and devising their own variations on the theme.

Who Are Their Prey? All of Us: From the Left and Right

2010-02-25T05:53:00.001-08:00

http://www.infowars.com/who-are-their-prey-all-of-us-from-the-left-and-right/

Who Are Their Prey? All of Us: From the Left and Right
J. Speer-Williams
Infowars.com
Feburary 24, 2010

Our knee-jerk, tunnel-visioned, democratic and republican voters must develop some peripheral vision, or they will be taught some lessons of life that could more more easily be learned by viewing outside of the central areas of corporate media focus. And perhaps, the best place to begin seeing on the edges of one’s usual visual field is the corporate media itself.

Andrew Jackson: “The bold effort of the present bank had made to control the government, the distress it had wantonly produced are premonitions of the fate that awaits the American people should they be deluded into a perpetuation of this institution or the establishment of another like it.”

Let us begin by asking ourselves, “Who owns the corporate-mainstream media?”

And of course, the answer is large, very large, corporations own the corporate media.

But, who owns the controlling stock of these large corporations, and controls their “news” and aired content?

The answer is the foreign, privately owned International Monetary/Banking Cartel, that controls the money and credit of the world. Make sense?

Now, if one will study the long and infamous track record of this private Cartel, and correlate its activities with the corresponding “news” of the day, one will soon see the reciprocal relationship between that news and the subsequent national and international events.

You see, the corporate media does not so much reports on news events, as it prepares the stage to justify the various covert actions then taken by the Cartel.

So now, let us learn a bit more about this monolith called the International Monetary/Banking Cartel, and how they came to control their corporate media and their fascistic/socialist police states down through much of recorded history.

Did Jesus give us a blanket condemnation of financial oligarchs, monopoly capitalists, and money-changers?
Creating a whip from some cords, Jesus – in his only recorded incidence of violence – drove the money-changers out of the
Temple of Jerusalem; it was a moment of spiritual enlightenment, described in all four gospels.

The Temple of Jerusalem was used for animal sacrifices, and a collection plate, where Jewish people were encouraged to bring in their “sin offerings.” Even then, like today, organized spirituality was perverted and debased with extortion, money, blood, and slaughter.

Do you see a resemblance between the money-changers of Biblical times and those of today?

Are today’s monopoly oligarchs of the same blood-thirsty tribe of thieves as were the money-changers Jesus whipped out of the Temple?

Did Jesus tell us to shine the light of truth and justice on all secret priesthoods and hierarchies?

Our once great nation struggled as a mere thirteen colonies under the British coin of the realm, that is until they issued their own currency, they called Colonial Script. This helped the Colonies to enjoy an envious prosperity, until the European Banking Cartel, under the direction of the Rothschild clan, demanded that England’s King George III outlaw the Colonies from printing their own money, and go back to the currency of the Bank of England, which was owned by the International Banking Cartel.
Almost immediately, the Colonies fell into an economic decline, so severe that Benjamin Franklin wrote, “In one year, the conditions were so reversed that the era of prosperity ended, and a depression set in, to such an extent that the streets of the Colonies were filled with unemployed.”

King George’s prohibition on the Colonies printing their own money was the main reason the Colonies revolted. Franklin wrote in his autobiography, “The Colonies would have gladly borne the little tax on tea and other matters had it not been that England took away from the Colonies their money, which created unemployment and dissatisfaction. The inability to issue their own money permanently out of the hands of King George III and the international bankers was the prime reason for the Revolutionary War.”

The Horsemen of the Apocalypse came early to our newly formed country, fronted by Lt. Col. Alexander Hamilton, who had served his country well as General Washington’s aid-de-camp, during the Revolutionary War. But once Hamilton was appointed, by President Washington, to be our first Secretary of the Treasury, Alexander turned traitor.

Hamilton formed a political party that came to be known as the Federalists, who wanted to abnegate the young nation’s financial needs and responsibilities to the same European bankers who had caused the earlier depression, over the more responsible founding fathers, led by Thomas Jefferson, who had their own political party called the Democratic-Republicans.
Unfortunately, the Federalists held sway, and the First Bank of the United States, owned and controlled by the International Banking Cartel, was formed in 1791.

After such a defeat for our country, Thomas Jefferson, who believed the US government, itself, should issue its own currency and credit, thereby not incurring large national debts, with usury interest rates, and inflations wrote, “I believe bank institutions are more dangerous to our liberties than standing armies. They have set up a money aristocracy that has set the government at defiance. They should take the power of issuing money from the bankers and restore it to Congress and the people to who it properly belongs.”

Before he died, Jefferson lamented, “I wish it were possible to obtain a single amendment to our Constitution – taking from the federal government their power of borrowing.”

Our fourth president, James Madison wrote, “History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance.”

Andrew Jackson, our seventh president, vetoed the bill from Congress that would have extended the charter of the Cartel’s Bank of the United states, and gave his reasons why:

It concentrated an excessive amount of the nation’s financial strength in a single institution;

It exposed the government to control by foreign interests;

It served mainly to make the rich richer;

It exercised too much control over the members of congress.

It favored Northeast states over Southern and Western states.

Additionally, President Jackson wrote, “The bold effort of the present bank had made to control the government, the distress it had wantonly produced are premonitions of the fate that awaits the American people should they be deluded into a perpetuation of this institution or the establishment of another like it.”

In an angrier tone, Jackson said to the bankers, mincing no words, “You are a den of vipers and thieves. I intend to rout you out, and by the eternal God, I will rout you out.”

Jackson’s administration was the first and only in US history to have eliminated our national debt, by routing out the pit vipers of the International Banking Cartel, thus avoiding the distresses of deflations and the horrors of hyper-inflation, that invariably follow the borrowing money from the Banking Cartel.

At least two attempts were made upon the life of President Jackson, as were made on three other of our presidents, who tried to take back the control of our money and credit from the Banking Cartel, or were even critical of them: Lincoln, Garfield, and Kennedy.

President Abe Lincoln, and his Treasury Secretary, Salmon Portland Chase, were both outraged by what they estimated the Banking Cartel would charge American citizens in interest on loans to pursue the Civil War. As a result Lincoln by-passed the Cartel by convincing the US Congress to enact legislation authorizing the printing of dollars that carried the full legal tender of US Treasury notes, that came to be called “Greenbacks.”

The European Banking Cartel was not pleased with Lincoln’s Greenbacks, and said so in their flagship newspaper of that era, The London Times: “If this mischievous financial policy should become endurated down to a fixture, then that government will furnish its own money without cost. It will pay off its debts and be without debts. It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in the history of the world. The brains and wealth of all countries will go to America. That government must be destroyed or it will destroy every monarchy on the globe.”

Destroy every monarchy? No! But, Lincoln could have severely damaged the International Banking Cartel, had he lived. But on Good Friday, April 14, 1865, Old Abe’s administration ended prematurely, when the President was fatally shot, in the Ford Theatre, while watching the British play, “Our American Cousin.”

Shortly after becoming our 20th president, James Garfield said, “Whoever controls the volume of money in any country is absolute master of all industry and commerce. And when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.”
On July 2, 1881, a few weeks after President Garfield made the above statement, he too was assassinated.

In June of 1963, President John F. Kennedy signed Executive Order (EO) 11110, which would have divested the Cartel’s central bank in America, the Federal Reserve System, of its power in the United States, had President Kennedy lived to implement his EO.

But, on the 22nd of November 1963, scarcely six months after Kennedy had signed the most momentous document since Lincoln’s Emancipation Proclamation of January 1, 1863, President Kennedy was assassinated in Dallas, Texas.

As commanded to do, the major media of the world virtually ignored Kennedy’s EO 11110, which should have been the most surprising news to have erupted from the United States, since Andrew Jackson vetoed the renewal charter of the Second Bank of the United States.

And of course, EO 11110 was rendered null and void by the Cartel’s next president, Lyndon Baines Johnson.

Throughout the 1970s, and part of the 1980s, Georgia Republican Congressman Dr. Larry P. MacDonald worked tirelessly to expose the hidden holdings, influence, and intentions of the Banking Cartel. But on the 31st of August 1983, Dr. MacDonald’s good work came to a fiery end: The Korean Airlines 007, carrying Dr. MacDonald was shot down over Russian air space.

Please pray for the lives of Congressmen Ron Paul and Dennis Kucinich, who are both currently fighting the Banking Cartel, and fighting for all of us, and the real American way of life.

We are their prey. All of us, from the left and right. But if a majority of Americans, no matter where they reside on the political spectrum, joined hands and hearts against the alien Monetary/Banking Cartel, we could take back our country, and in time restore the American Dream, and make the United States the best example of a sovereign nation the world has ever seen.

Wall Street's Bailout Hustle

2010-02-23T15:43:00.000-08:00

http://www.rollingstone.com/politics/story/32255149/wall_streets_bailout_hustle/print

February 21, 2010 by Rolling Stone
Goldman Sachs and other big banks aren't just pocketing the trillions we gave them to rescue the economy - they're re-creating the conditions for another crash
by Matt Taibbi

On January 21st, Lloyd Blankfein left a peculiar voicemail message on the work phones of his employees at Goldman Sachs. Fast becoming America's pre-eminent Marvel Comics supervillain, the CEO used the call to deploy his secret weapon: a pair of giant, nuclear-powered testicles. In his message, Blankfein addressed his plan to pay out gigantic year-end bonuses amid widespread controversy over Goldman's role in precipitating the global financial crisis.

The bank had already set aside a tidy $16.2 billion for salaries and bonuses - meaning that Goldman employees were each set to take home an average of $498,246, a number roughly commensurate with what they received during the bubble years. Still, the troops were worried: There were rumors that Dr. Ballsachs, bowing to political pressure, might be forced to scale the number back. After all, the country was broke, 14.8 million Americans were stranded on the unemployment line, and Barack Obama and the Democrats were trying to recover the populist high ground after their bitch-whipping in Massachusetts by calling for a "bailout tax" on banks. Maybe this wasn't the right time for Goldman to be throwing its annual Roman bonus orgy.

Not to worry, Blankfein reassured employees. "In a year that proved to have no shortage of story lines," he said, "I believe very strongly that performance is the ultimate narrative."

Translation: We made a shitload of money last year because we're so amazing at our jobs, so fuck all those people who want us to reduce our bonuses.

Goldman wasn't alone. The nation's six largest banks - all committed to this balls-out, I drink your milkshake! strategy of flagrantly gorging themselves as America goes hungry - set aside a whopping $140 billion for executive compensation last year, a sum only slightly less than the $164 billion they paid themselves in the pre-crash year of 2007. In a gesture of self-sacrifice, Blankfein himself took a humiliatingly low bonus of $9 million, less than the 2009 pay of elephantine New York Knicks washout Eddy Curry. But in reality, not much had changed. "What is the state of our moral being when Lloyd Blankfein taking a $9 million bonus is viewed as this great act of contrition, when every penny of it was a direct transfer from the taxpayer?" asks Eliot Spitzer, who tried to hold Wall Street accountable during his own ill-fated stint as governor of New York.

Beyond a few such bleats of outrage, however, the huge payout was met, by and large, with a collective sigh of resignation. Because beneath America's populist veneer, on a more subtle strata of the national psyche, there remains a strong temptation to not really give a shit. The rich, after all, have always made way too much money; what's the difference if some fat cat in New York pockets $20 million instead of $10 million?

The only reason such apathy exists, however, is because there's still a widespread misunderstanding of how exactly Wall Street "earns" its money, with emphasis on the quotation marks around "earns." The question everyone should be asking, as one bailout recipient after another posts massive profits - Goldman reported $13.4 billion in profits last year, after paying out that $16.2 billion in bonuses and compensation - is this: In an economy as horrible as ours, with every factory town between New York and Los Angeles looking like those hollowed-out ghost ships we see on History Channel documentaries like Shipwrecks of the Great Lakes, where in the hell did Wall Street's eye-popping profits come from, exactly? Did Goldman go from bailout city to $13.4 billion in the black because, as Blankfein suggests, its "performance" was just that awesome? A year and a half after they were minutes away from bankruptcy, how are these assholes not only back on their feet again, but hauling in bonuses at the same rate they were during the bubble?

The answer to that question is basically twofold: They raped the taxpayer, and they raped their clients.

The bottom line is that banks like Goldman have learned absolutely nothing from the global economic meltdown. In fact, they're back conniving and playing speculative long shots in force - only this time with the full financial support of the U.S. government. In the process, they're rapidly re-creating the conditions for another crash, with the same actors once again playing the same crazy games of financial chicken with the same toxic assets as before.

That's why this bonus business isn't merely a matter of getting upset about whether or not Lloyd Blankfein buys himself one tropical island or two on his next birthday. The reality is that the post-bailout era in which Goldman thrived has turned out to be a chaotic frenzy of high-stakes con-artistry, with taxpayers and clients bilked out of billions using a dizzying array of old-school hustles that, but for their ponderous complexity, would have fit well in slick grifter movies like The Sting and Matchstick Men. There's even a term in con-man lingo for what some of the banks are doing right now, with all their cosmetic gestures of scaling back bonuses and giving to charities. In the grifter world, calming down a mark so he doesn't call the cops is known as the "Cool Off."

To appreciate how all of these (sometimes brilliant) schemes work is to understand the difference between earning money and taking scores, and to realize that the profits these banks are posting don't so much represent national growth and recovery, but something closer to the losses one would report after a theft or a car crash. Many Americans instinctively understand this to be true - but, much like when your wife does it with your 300-pound plumber in the kids' playroom, knowing it and actually watching the whole scene from start to finish are two very different things. In that spirit, a brief history of the best 18 months of grifting this country has ever seen:

CON #1 THE SWOOP AND SQUAT

By now, most people who have followed the financial crisis know that the bailout of AIG was actually a bailout of AIG's "counterparties" - the big banks like Goldman to whom the insurance giant owed billions when it went belly up.

What is less understood is that the bailout of AIG counter-parties like Goldman and Société Générale, a French bank, actually began before the collapse of AIG, before the Federal Reserve paid them so much as a dollar. Nor is it understood that these counterparties actually accelerated the wreck of AIG in what was, ironically, something very like the old insurance scam known as "Swoop and Squat," in which a target car is trapped between two perpetrator vehicles and wrecked, with the mark in the game being the target's insurance company - in this case, the government.

This may sound far-fetched, but the financial crisis of 2008 was very much caused by a perverse series of legal incentives that often made failed investments worth more than thriving ones. Our economy was like a town where everyone has juicy insurance policies on their neighbors' cars and houses. In such a town, the driving will be suspiciously bad, and there will be a lot of fires.

AIG was the ultimate example of this dynamic. At the height of the housing boom, Goldman was selling billions in bundled mortgage-backed securities - often toxic crap of the no-money-down, no-identification-needed variety of home loan - to various institutional suckers like pensions and insurance companies, who frequently thought they were buying investment-grade instruments. At the same time, in a glaring example of the perverse incentives that existed and still exist, Goldman was also betting against those same sorts of securities - a practice that one government investigator compared to "selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars."

Goldman often "insured" some of this garbage with AIG, using a virtually unregulated form of pseudo-insurance called credit-default swaps. Thanks in large part to deregulation pushed by Bob Rubin, former chairman of Goldman, and Treasury secretary under Bill Clinton, AIG wasn't required to actually have the capital to pay off the deals. As a result, banks like Goldman bought more than $440 billion worth of this bogus insurance from AIG, a huge blind bet that the taxpayer ended up having to eat.

Thus, when the housing bubble went crazy, Goldman made money coming and going. They made money selling the crap mortgages, and they made money by collecting on the bogus insurance from AIG when the crap mortgages flopped.

Still, the trick for Goldman was: how to collect the insurance money. As AIG headed into a tailspin that fateful summer of 2008, it looked like the beleaguered firm wasn't going to have the money to pay off the bogus insurance. So Goldman and other banks began demanding that AIG provide them with cash collateral. In the 15 months leading up to the collapse of AIG, Goldman received $5.9 billion in collateral. Société Générale, a bank holding lots of mortgage-backed crap originally underwritten by Goldman, received $5.5 billion. These collateral demands squeezing AIG from two sides were the "Swoop and Squat" that ultimately crashed the firm. "It put the company into a liquidity crisis," says Eric Dinallo, who was intimately involved in the AIG bailout as head of the New York State Insurance Department.

It was a brilliant move. When a company like AIG is about to die, it isn't supposed to hand over big hunks of assets to a single creditor like Goldman; it's supposed to equitably distribute whatever assets it has left among all its creditors. Had AIG gone bankrupt, Goldman would have likely lost much of the $5.9 billion that it pocketed as collateral. "Any bankruptcy court that saw those collateral payments would have declined that transaction as a fraudulent conveyance," says Barry Ritholtz, the author of Bailout Nation. Instead, Goldman and the other counterparties got their money out in advance - putting a torch to what was left of AIG. Fans of the movie Goodfellas will recall Henry Hill and Tommy DeVito taking the same approach to the Bamboo Lounge nightclub they'd been gouging. Roll the Ray Liotta narration: "Finally, when there's nothing left, when you can't borrow another buck . . . you bust the joint out. You light a match."

And why not? After all, according to the terms of the bailout deal struck when AIG was taken over by the state in September 2008, Goldman was paid 100 cents on the dollar on an additional $12.9 billion it was owed by AIG - again, money it almost certainly would not have seen a fraction of had AIG proceeded to a normal bankruptcy. Along with the collateral it pocketed, that's $19 billion in pure cash that Goldman would not have "earned" without massive state intervention. How's that $13.4 billion in 2009 profits looking now? And that doesn't even include the direct bailouts of Goldman Sachs and other big banks, which began in earnest after the collapse of AIG.

CON #2 THE DOLLAR STORE

In the usual "DollarStore" or "Big Store" scam - popularized in movies like The Sting - a huge cast of con artists is hired to create a whole fake environment into which the unsuspecting mark walks and gets robbed over and over again. A warehouse is converted into a makeshift casino or off-track betting parlor, the fool walks in with money, leaves without it.

The two key elements to the Dollar Store scam are the whiz-bang theatrical redecorating job and the fact that everyone is in on it except the mark. In this case, a pair of investment banks were dressed up to look like commercial banks overnight, and it was the taxpayer who walked in and lost his shirt, confused by the appearance of what looked like real Federal Reserve officials minding the store.

Less than a week after the AIG bailout, Goldman and another investment bank, Morgan Stanley, applied for, and received, federal permission to become bank holding companies - a move that would make them eligible for much greater federal support. The stock prices of both firms were cratering, and there was talk that either or both might go the way of Lehman Brothers, another once-mighty investment bank that just a week earlier had disappeared from the face of the earth under the weight of its toxic assets. By law, a five-day waiting period was required for such a conversion - but the two banks got them overnight, with final approval actually coming only five days after the AIG bailout.

Why did they need those federal bank charters? This question is the key to understanding the entire bailout era - because this Dollar Store scam was the big one. Institutions that were, in reality, high-risk gambling houses were allowed to masquerade as conservative commercial banks. As a result of this new designation, they were given access to a virtually endless tap of "free money" by unsuspecting taxpayers. The $10 billion that Goldman received under the better-known TARP bailout was chump change in comparison to the smorgasbord of direct and indirect aid it qualified for as a commercial bank.

When Goldman Sachs and Morgan Stanley got their federal bank charters, they joined Bank of America, Citigroup, J.P. Morgan Chase and the other banking titans who could go to the Fed and borrow massive amounts of money at interest rates that, thanks to the aggressive rate-cutting policies of Fed chief Ben Bernanke during the crisis, soon sank to zero percent. The ability to go to the Fed and borrow big at next to no interest was what saved Goldman, Morgan Stanley and other banks from death in the fall of 2008. "They had no other way to raise capital at that moment, meaning they were on the brink of insolvency," says Nomi Prins, a former managing director at Goldman Sachs. "The Fed was the only shot."

In fact, the Fed became not just a source of emergency borrowing that enabled Goldman and Morgan Stanley to stave off disaster - it became a source of long-term guaranteed income. Borrowing at zero percent interest, banks like Goldman now had virtually infinite ways to make money. In one of the most common maneuvers, they simply took the money they borrowed from the government at zero percent and lent it back to the government by buying Treasury bills that paid interest of three or four percent. It was basically a license to print money - no different than attaching an ATM to the side of the Federal Reserve.

"You're borrowing at zero, putting it out there at two or three percent, with hundreds of billions of dollars - man, you can make a lot of money that way," says the manager of one prominent hedge fund. "It's free money." Which goes a long way to explaining Goldman's enormous profits last year. But all that free money was amplified by another scam:

CON #3 THE PIG IN THE POKE

At one point or another, pretty much everyone who takes drugs has been burned by this one, also known as the "Rocks in the Box" scam or, in its more elaborate variations, the "Jamaican Switch." Someone sells you what looks like an eightball of coke in a baggie, you get home and, you dumbass, it's baby powder.

The scam's name comes from the Middle Ages, when some fool would be sold a bound and gagged pig that he would see being put into a bag; he'd miss the switch, then get home and find a tied-up cat in there instead. Hence the expression "Don't let the cat out of the bag."

The "Pig in the Poke" scam is another key to the entire bailout era. After the crash of the housing bubble - the largest asset bubble in history - the economy was suddenly flooded with securities backed by failing or near-failing home loans. In the cleanup phase after that bubble burst, the whole game was to get taxpayers, clients and shareholders to buy these worthless cats, but at pig prices.

One of the first times we saw the scam appear was in September 2008, right around the time that AIG was imploding. That was when the Fed changed some of its collateral rules, meaning banks that could once borrow only against sound collateral, like Treasury bills or AAA-rated corporate bonds, could now borrow against pretty much anything - including some of the mortgage-backed sewage that got us into this mess in the first place. In other words, banks that once had to show a real pig to borrow from the Fed could now show up with a cat and get pig money. "All of a sudden, banks were allowed to post absolute shit to the Fed's balance sheet," says the manager of the prominent hedge fund.

The Fed spelled it out on September 14th, 2008, when it changed the collateral rules for one of its first bailout facilities - the Primary Dealer Credit Facility, or PDCF. The Fed's own write-up described the changes: "With the Fed's action, all the kinds of collateral then in use . . . including non-investment-grade securities and equities . . . became eligible for pledge in the PDCF."

Translation: We now accept cats.

The Pig in the Poke also came into play in April of last year, when Congress pushed a little-known agency called the Financial Accounting Standards Board, or FASB, to change the so-called "mark-to-market" accounting rules. Until this rule change, banks had to assign a real-market price to all of their assets. If they had a balance sheet full of securities they had bought at $3 that were now only worth $1, they had to figure their year-end accounting using that $1 value. In other words, if you were the dope who bought a cat instead of a pig, you couldn't invite your shareholders to a slate of pork dinners come year-end accounting time.

But last April, FASB changed all that. From now on, it announced, banks could avoid reporting losses on some of their crappy cat investments simply by declaring that they would "more likely than not" hold on to them until they recovered their pig value. In short, the banks didn't even have to actually hold on to the toxic shit they owned - they just had to sort of promise to hold on to it.

That's why the "profit" numbers of a lot of these banks are really a joke. In many cases, we have absolutely no idea how many cats are in their proverbial bag. What they call "profits" might really be profits, only minus undeclared millions or billions in losses.

"They're hiding all this stuff from their shareholders," says Ritholtz, who was disgusted that the banks lobbied for the rule changes. "Now, suddenly banks that were happy to mark to market on the way up don't have to mark to market on the way down."

CON #4 THE RUMANIAN BOX

One of the great innovations of Victor Lustig, the legendary Depression-era con man who wrote the famous "Ten Commandments for Con Men," was a thing called the "Rumanian Box." This was a little machine that a mark would put a blank piece of paper into, only to see real currency come out the other side. The brilliant Lustig sold this Rumanian Box over and over again for vast sums - but he's been outdone by the modern barons of Wall Street, who managed to get themselves a real Rumanian Box.

How they accomplished this is a story that by itself highlights the challenge of placing this era in any kind of historical context of known financial crime. What the banks did was something that was never - and never could have been - thought of before. They took so much money from the government, and then did so little with it, that the state was forced to start printing new cash to throw at them. Even the great Lustig in his wildest, horniest dreams could never have dreamed up this one.

The setup: By early 2009, the banks had already replenished themselves with billions if not trillions in bailout money. It wasn't just the $700 billion in TARP cash, the free money provided by the Fed, and the untold losses obscured by accounting tricks. Another new rule allowed banks to collect interest on the cash they were required by law to keep in reserve accounts at the Fed - meaning the state was now compensating the banks simply for guaranteeing their own solvency. And a new federal operation called the Temporary Liquidity Guarantee Program let insolvent and near-insolvent banks dispense with their deservedly ruined credit profiles and borrow on a clean slate, with FDIC backing. Goldman borrowed $29 billion on the government's good name, J.P. Morgan Chase $38 billion, and Bank of America $44 billion. "TLGP," says Prins, the former Goldman manager, "was a big one."

Collectively, all this largesse was worth trillions. The idea behind the flood of money, from the government's standpoint, was to spark a national recovery: We refill the banks' balance sheets, and they, in turn, start to lend money again, recharging the economy and producing jobs. "The banks were fast approaching insolvency," says Rep. Paul Kanjorski, a vocal critic of Wall Street who nevertheless defends the initial decision to bail out the banks. "It was vitally important that we recapitalize these institutions."

But here's the thing. Despite all these trillions in government rescues, despite the Fed slashing interest rates down to nothing and showering the banks with mountains of guarantees, Goldman and its friends had still not jump-started lending again by the first quarter of 2009. That's where those nuclear-powered balls of Lloyd Blankfein came into play, as Goldman and other banks basically threatened to pick up their bailout billions and go home if the government didn't fork over more cash - a lot more. "Even if the Fed could make interest rates negative, that wouldn't necessarily help," warned Goldman's chief domestic economist, Jan Hatzius. "We're in a deep recession mainly because the private sector, for a variety of reasons, has decided to save a lot more."

Translation: You can lower interest rates all you want, but we're still not fucking lending the bailout money to anyone in this economy. Until the government agreed to hand over even more goodies, the banks opted to join the rest of the "private sector" and "save" the taxpayer aid they had received - in the form of bonuses and compensation.

The ploy worked. In March of last year, the Fed sharply expanded a radical new program called quantitative easing, which effectively operated as a real-live Rumanian Box. The government put stacks of paper in one side, and out came $1.2 trillion "real" dollars.

The government used some of that freshly printed money to prop itself up by purchasing Treasury bonds - a desperation move, since Washington's demand for cash was so great post-Clusterfuck '08 that even the Chinese couldn't buy U.S. debt fast enough to keep America afloat. But the Fed used most of the new cash to buy mortgage-backed securities in an effort to spur home lending - instantly creating a massive market for major banks.

And what did the banks do with the proceeds? Among other things, they bought Treasury bonds, essentially lending the money back to the government, at interest. The money that came out of the magic Rumanian Box went from the government back to the government, with Wall Street stepping into the circle just long enough to get paid. And once quantitative easing ends, as it is scheduled to do in March, the flow of money for home loans will once again grind to a halt. The Mortgage Bankers Association expects the number of new residential mortgages to plunge by 40 percent this year.

CON #5 THE BIG MITT

All of that Rumanian box paper was made even more valuable by running it through the next stage of the grift. Michael Masters, one of the country's leading experts on commodities trading, compares this part of the scam to the poker game in the Bill Murray comedy Stripes. "It's like that scene where John Candy leans over to the guy who's new at poker and says, 'Let me see your cards,' then starts giving him advice," Masters says. "He looks at the hand, and the guy has bad cards, and he's like, 'Bluff me, come on! If it were me, I'd bet everything!' That's what it's like. It's like they're looking at your cards as they give you advice."

In more ways than one can count, the economy in the bailout era turned into a "Big Mitt," the con man's name for a rigged poker game. Everybody was indeed looking at everyone else's cards, in many cases with state sanction. Only taxpayers and clients were left out of the loop.

At the same time the Fed and the Treasury were making massive, earthshaking moves like quantitative easing and TARP, they were also consulting regularly with private advisory boards that include every major player on Wall Street. The Treasury Borrowing Advisory Committee has a J.P. Morgan executive as its chairman and a Goldman executive as its vice chairman, while the board advising the Fed includes bankers from Capital One and Bank of New York Mellon. That means that, in addition to getting great gobs of free money, the banks were also getting clear signals about when they were getting that money, making it possible to position themselves to make the appropriate investments.

One of the best examples of the banks blatantly gambling, and winning, on government moves was the Public-Private Investment Program, or PPIP. In this bizarre scheme cooked up by goofball-geek Treasury Secretary Tim Geithner, the government loaned money to hedge funds and other private investors to buy up the absolutely most toxic horseshit on the market - the same kind of high-risk, high-yield mortgages that were most responsible for triggering the financial chain reaction in the fall of 2008. These satanic deals were the basic currency of the bubble: Jobless dope fiends bought houses with no money down, and the big banks wrapped those mortgages into securities and then sold them off to pensions and other suckers as investment-grade deals. The whole point of the PPIP was to get private investors to relieve the banks of these dangerous assets before they hurt any more innocent bystanders.

But what did the banks do instead, once they got wind of the PPIP? They started buying that worthless crap again, presumably to sell back to the government at inflated prices! In the third quarter of last year, Goldman, Morgan Stanley, Citigroup and Bank of America combined to add $3.36 billion of exactly this horseshit to their balance sheets.

This brazen decision to gouge the taxpayer startled even hardened market observers. According to Michael Schlachter of the investment firm Wilshire Associates, it was "absolutely ridiculous" that the banks that were supposed to be reducing their exposure to these volatile instruments were instead loading up on them in order to make a quick buck. "Some of them created this mess," he said, "and they are making a killing undoing it."

CON #6 THE WIRE

Here's the thing about our current economy. When Goldman and Morgan Stanley transformed overnight from investment banks into commercial banks, we were told this would mean a new era of "significantly tighter regulations and much closer supervision by bank examiners," as The New York Times put it the very next day. In reality, however, the conversion of Goldman and Morgan Stanley simply completed the dangerous concentration of power and wealth that began in 1999, when Congress repealed the Glass-Steagall Act - the Depression-era law that had prevented the merger of insurance firms, commercial banks and investment houses. Wall Street and the government became one giant dope house, where a few major players share valuable information between conflicted departments the way junkies share needles.

One of the most common practices is a thing called front-running, which is really no different from the old "Wire" con, another scam popularized in The Sting. But instead of intercepting a telegraph wire in order to bet on racetrack results ahead of the crowd, what Wall Street does is make bets ahead of valuable information they obtain in the course of everyday business.

Say you're working for the commodities desk of a big investment bank, and a major client - a pension fund, perhaps - calls you up and asks you to buy a billion dollars of oil futures for them. Once you place that huge order, the price of those futures is almost guaranteed to go up. If the guy in charge of asset management a few desks down from you somehow finds out about that, he can make a fortune for the bank by betting ahead of that client of yours. The deal would be instantaneous and undetectable, and it would offer huge profits. Your own client would lose money, of course - he'd end up paying a higher price for the oil futures he ordered, because you would have driven up the price. But that doesn't keep banks from screwing their own customers in this very way.

The scam is so blatant that Goldman Sachs actually warns its clients that something along these lines might happen to them. In the disclosure section at the back of a research paper the bank issued on January 15th, Goldman advises clients to buy some dubious high-yield bonds while admitting that the bank itself may bet against those same shitty bonds. "Our salespeople, traders and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research," the disclosure reads. "Our asset-management area, our proprietary-trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research."

Banks like Goldman admit this stuff openly, despite the fact that there are securities laws that require banks to engage in "fair dealing with customers" and prohibit analysts from issuing opinions that are at odds with what they really think. And yet here they are, saying flat-out that they may be issuing an opinion at odds with what they really think.

To help them screw their own clients, the major investment banks employ high-speed computer programs that can glimpse orders from investors before the deals are processed and then make trades on behalf of the banks at speeds of fractions of a second. None of them will admit it, but everybody knows what this computerized trading - known as "flash trading" - really is. "Flash trading is nothing more than computerized front-running," says the prominent hedge-fund manager. The SEC voted to ban flash trading in September, but five months later it has yet to issue a regulation to put a stop to the practice.

Over the summer, Goldman suffered an embarrassment on that score when one of its employees, a Russian named Sergey Aleynikov, allegedly stole the bank's computerized trading code. In a court proceeding after Aleynikov's arrest, Assistant U.S. Attorney Joseph Facciponti reported that "the bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways."

Six months after a federal prosecutor admitted in open court that the Goldman trading program could be used to unfairly manipulate markets, the bank released its annual numbers. Among the notable details was the fact that a staggering 76 percent of its revenue came from trading, both for its clients and for its own account. "That is much, much higher than any other bank," says Prins, the former Goldman managing director. "If I were a client and I saw that they were making this much money from trading, I would question how badly I was getting screwed."

Why big institutional investors like pension funds continually come to Wall Street to get raped is the million-dollar question that many experienced observers puzzle over. Goldman's own explanation for this phenomenon is comedy of the highest order. In testimony before a government panel in January, Blankfein was confronted about his firm's practice of betting against the same sorts of investments it sells to clients. His response: "These are the professional investors who want this exposure."

In other words, our clients are big boys, so screw 'em if they're dumb enough to take the sucker bets I'm offering.

CON #7 THE RELOAD

Not many con men are good enough or brazen enough to con the same victim twice in a row, but the few who try have a name for this excellent sport: reloading. The usual way to reload on a repeat victim (called an "addict" in grifter parlance) is to rope him into trying to get back the money he just lost. This is exactly what started to happen late last year.

It's important to remember that the housing bubble itself was a classic confidence game - the Ponzi scheme. The Ponzi scheme is any scam in which old investors must be continually paid off with money from new investors to keep up what appear to be high rates of investment return. Residential housing was never as valuable as it seemed during the bubble; the soaring home values were instead a reflection of a continual upward rush of new investors in mortgage-backed securities, a rush that finally collapsed in 2008.

But by the end of 2009, the unimaginable was happening: The bubble was re-inflating. A bailout policy that was designed to help us get out from under the bursting of the largest asset bubble in history inadvertently produced exactly the opposite result, as all that government-fueled capital suddenly began flowing into the most dangerous and destructive investments all over again. Wall Street was going for the reload.

A lot of this was the government's own fault, of course. By slashing interest rates to zero and flooding the market with money, the Fed was replicating the historic mistake that Alan Greenspan had made not once, but twice, before the tech bubble in the early 1990s and before the housing bubble in the early 2000s. By making sure that traditionally safe investments like CDs and savings accounts earned basically nothing, thanks to rock-bottom interest rates, investors were forced to go elsewhere to search for moneymaking opportunities.

Now we're in the same situation all over again, only far worse. Wall Street is flooded with government money, and interest rates that are not just low but flat are pushing investors to seek out more "creative" opportunities. (It's "Greenspan times 10," jokes one hedge-fund trader.) Some of that money could be put to use on Main Street, of course, backing the efforts of investment-worthy entrepreneurs. But that's not what our modern Wall Street is built to do. "They don't seem to want to lend to small and medium-sized business," says Rep. Brad Sherman, who serves on the House Financial Services Committee. "What they want to invest in is marketable securities. And the definition of small and medium-sized businesses, for the most part, is that they don't have marketable securities. They have bank loans."

In other words, unless you're dealing with the stock of a major, publicly traded company, or a giant pile of home mortgages, or the bonds of a large corporation, or a foreign currency, or oil futures, or some country's debt, or anything else that can be rapidly traded back and forth in huge numbers, factory-style, by big banks, you're not really on Wall Street's radar.

So with small business out of the picture, and the safe stuff not worth looking at thanks to the Fed's low interest rates, where did Wall Street go? Right back into the shit that got us here.

One trader, who asked not to be identified, recounts a story of what happened with his hedge fund this past fall. His firm wanted to short - that is, bet against - all the crap toxic bonds that were suddenly in vogue again. The fund's analysts had examined the fundamentals of these instruments and concluded that they were absolutely not good investments.

So they took a short position. One month passed, and they lost money. Another month passed - same thing. Finally, the trader just shrugged and decided to change course and buy.

"I said, 'Fuck it, let's make some money,'" he recalls. "I absolutely did not believe in the fundamentals of any of this stuff. However, I can get on the bandwagon, just so long as I know when to jump out of the car before it goes off the damn cliff!"

This is the very definition of bubble economics - betting on crowd behavior instead of on fundamentals. It's old investors betting on the arrival of new ones, with the value of the underlying thing itself being irrelevant. And this behavior is being driven, no surprise, by the biggest firms on Wall Street.

The research report published by Goldman Sachs on January 15th underlines this sort of thinking. Goldman issued a strong recommendation to buy exactly the sort of high-yield toxic crap our hedge-fund guy was, by then, driving rapidly toward the cliff. "Summarizing our views," the bank wrote, "we expect robust flows . . . to dominate fundamentals." In other words: This stuff is crap, but everyone's buying it in an awfully robust way, so you should too. Just like tech stocks in 1999, and mortgage-backed securities in 2006.

To sum up, this is what Lloyd Blankfein meant by "performance": Take massive sums of money from the government, sit on it until the government starts printing trillions of dollars in a desperate attempt to restart the economy, buy even more toxic assets to sell back to the government at inflated prices - and then, when all else fails, start driving us all toward the cliff again with a frank and open endorsement of bubble economics. I mean, shit - who wouldn't deserve billions in bonuses for doing all that?

Con artists have a word for the inability of their victims to accept that they've been scammed. They call it the "True Believer Syndrome." That's sort of where we are, in a state of nagging disbelief about the real problem on Wall Street. It isn't so much that we have inadequate rules or incompetent regulators, although both of these things are certainly true. The real problem is that it doesn't matter what regulations are in place if the people running the economy are rip-off artists. The system assumes a certain minimum level of ethical behavior and civic instinct over and above what is spelled out by the regulations. If those ethics are absent - well, this thing isn't going to work, no matter what we do. Sure, mugging old ladies is against the law, but it's also easy. To prevent it, we depend, for the most part, not on cops but on people making the conscious decision not to do it.

That's why the biggest gift the bankers got in the bailout was not fiscal but psychological. "The most valuable part of the bailout," says Rep. Sherman, "was the implicit guarantee that they're Too Big to Fail." Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures. And what should really freak everyone out is the fact that Wall Street immediately started skimming off its own rescue money. If the bailouts validated anew the crooked psychology of the bubble, the recent profit and bonus numbers show that the same psychology is back, thriving, and looking for new disasters to create. "It's evidence," says Rep. Kanjorski, "that they still don't get it."

More to the point, the fact that we haven't done much of anything to change the rules and behavior of Wall Street shows that we still don't get it. Instituting a bailout policy that stressed recapitalizing bad banks was like the addict coming back to the con man to get his lost money back. Ask yourself how well that ever works out. And then get ready for the reload.

©Copyright 2010 Rolling Stone

As Rolling Stone’s chief political reporter, Matt Taibbi's predecessors include the likes of journalistic giants Hunter S. Thompson and P.J. O'Rourke. Taibbi's 2004 campaign journal Spanking the Donkey cemented his status as an incisive, irreverent, zero-bullshit reporter. His latest collection is Smells Like Dead Elephants: Dispatches from a Rotting Empire

Four more US banks close, total hits 20 for 2010

2010-02-21T18:14:00.000-08:00

http://www.reuters.com/article/idUSTRE61J0C520100220

Reuters
Fri, 19 Feb 2010 19:52 EST

Regulators seized four more U.S. banks on Friday, bringing the total for the year to 20.

The Federal Deposit Insurance Corp, in charge of safeguarding bank deposits and resolving failed banks, has predicted that 2010 will be peak year for failures resulting from the recent financial crisis.

It has warned that the banking industry's recovery will lag the overall economy as institutions continue to cope with deteriorating loans, many originated during the credit boom that ended when the housing bubble burst.

The FDIC said on Friday that regulators had closed four banks: the George Washington Savings Bank in Illinois, La Jolla Bank in California, La Coste National Bank in Texas and Marco Community Bank of Marco Island, Florida.

As of December 31, La Jolla Bank, FSB, which had 10 branches, had about $3.6 billion in assets and $2.8 billion in deposits. Its deposits are being assumed by OneWest Bank, FSB.

George Washington Savings Bank, which had four branches, had approximately $412.8 million in assets and $397.0 million in deposits. Its deposits will be assumed by FirstMerit Bank National Association in Ohio.

La Coste National Bank had approximately $53.9 million in assets and $49.3 million in deposits. Its single branch will reopen as part of Community National Bank in Texas.

Marco Community Bank had about $119.6 million in assets and $117.1 million in total deposits.

The FDIC's insurance fund balance is in the red, but the agency has said it has plenty of cash on hand to deal with failures and protect deposits. It also has the potential to tap its $500 billion line of credit with Treasury.

The agency is scheduled to give an update on its view of the banking industry when it holds a quarterly briefing on Tuesday.

It will reveal industry earnings for the fourth quarter of 2009, as well as provide an updated figure of the number of banks on its problem list.

As of the end of the third quarter, 552 banks were on the list. The FDIC has said the majority of banks on that list do not fail.

Last year, 140 banks failed, compared to 25 in 2008 and only three in 2007.

February 16, 2010 by The Guardian/UK Answer to the People, Not Greedy Elites by The Guardian/UK Argentina's president came under fire for sacking the

2010-02-17T11:13:00.000-08:00

http://www.commondreams.org/view/2010/02/16-4

February 16, 2010 by The Guardian/UK
Answer to the People, Not Greedy Elites
by The Guardian/UK
by Mark Weisbrot

The president of Argentina, Cristina Fernández, recently fired the head of the central bank, Martín Redrado, when he rejected the government's plan to use $6.6bn of international reserves to pay off debt.
The domestic and international press response was overwhelmingly negative, with complaints that this would "kill central bank independence ".

Leaving aside the question of whether it is a good idea to use these reserves to pay off international creditors – something that perhaps only the future will tell – is there a good reason why central banks should be "independent" of their elected governments?

The business press, which has the support of the vast majority of economists on this question, thinks there is. The basic argument is that if the central bank is not able to determine monetary policy free of "political considerations", then politicians will force the bank to be "too loose" with monetary policy and the country will end up with dangerously high levels of inflation.

This would seem to be a tough argument to swallow for anyone who believes in representative democracy. Fiscal policy – the government's decisions with regard to spending and taxation – is also a major determinant of economic activity. There are important tradeoffs that affect the livelihood, income and employment of most of the population. Yet in the US, these decisions are entrusted to our elected representatives in Congress, together with the executive.

There is no obvious reason why monetary policy – the central bank's decisions with regard to interest rates and money supply – is so different from other major policy decisions that it should be specially insulated from the electorate. There is no valid analogy, for example, to the independence of the judiciary – which is based on a theory of separation of powers, or checks and balances, ostensibly to limit abuses of power or infringements on civil rights and liberties.

The argument for an independent central bank is more purely an elitist argument. It really boils down to the idea that monetary policy is too important for the "uneducated" masses to have an influence over it.

Ironically, the reality is quite the opposite: monetary policy is an area where pressure from the majority is sorely needed. There is a grand conflict of interest between the financial sector and the rest of society. This has become more painfully obvious in the last two years, as the unmitigated greed of this bloated collection of special interests collapsed the US economy and dragged a good part of the world down with it. Our conception of central bank "independence" is so extreme that Ben Bernanke, who was a Federal Reserve governor since 2002 and chairman since 2006, could not even be denied reappointment – despite his enormous share of responsibility for an economic train wreck that caused millions of people to lose their jobs and homes. He sat on his hands while an $8tn housing bubble accumulated, thus guaranteeing the collapse that followed. But our financial sector is so politically powerful that even this minimal level of government oversight – refusing to reward one of the worst failures imaginable – was seen as too offensive to the financial markets.

But even in normal times, the financial sector generally prefers higher interest rates and lower employment than the vast majority of citizens would choose. Most people want the economy to be closer to full employment, and appreciate rising wages. A central bank that is "independent" of the public's needs and wants, and caters primarily to those of the financial sector, is therefore going to cause a lot of needless suffering.

For example, prior to the late 1990s, the Federal Reserve subscribed to a theory called the Nairu (non-accelerating inflation rate of unemployment). The Fed would tend to raise interest rates when unemployment fell below a presumed Nairu, thus slowing the economy, raising the unemployment rate, and reducing the growth of wages – on the theory that this was necessary to keep inflation from getting out of control. Before the 1990s, the Nairu for the US economy was generally considered to be between 5.8% and 6.6%. The empirical evidence for this theory was always very weak . After unemployment fell below 4.5% in 1997, and inflation still did not accelerate, Fed chair Alan Greenspan finally realised that this theory was wrong – and eventually abandoned it.

And now, International Monetary Fund (IMF) chief economist Oliver Blanchard, with a new paper Rethinking Macroeconomic Policy (pdf) , offers that the preferred 2% inflation target of most central banks may be too low. He asks whether 4% would be better . The paper questions other central bank orthodoxies and is likely to cause a bit of a stir in the economics profession.

The problem of "independent" central banks is even more serious for low- and middle-income countries than for the rich countries, since they need more co-operation from the central bank with regard to development policy.

In Argentina's case, it is questionable whether the country could have even begun the remarkable economic recovery that started in 2002, in which the economy grew more than 60% in six years, if its central bank had the kind of independence that the US Federal Reserve has. One of the government's most important economic policies required the central bank to target a stable and competitive real exchange rate, something that would be anathema to most central bankers. (Interestingly, Blanchard also now suggests that central banks in emerging market economies may have good reason to pay attention to exchange rates and try to reduce their volatility.)

Here in the United States , the Federal Reserve's Federal Open Market Committee meets every six weeks to set policy, including short-term interest rates. Five of the 12 voting members are regional Fed presidents, chosen by local boards where the banking industry is heavily represented. The CEO of JP Morgan Chase sits on the board of the powerful New York Fed.

As sometimes happens, the business press – with the help of much of the economics profession – has turned reality on its head. The problem is not that central banks need to be "independent" of political influence – rather they need to be held accountable to the public instead of answering to the all-powerful financial sector.

© Guardian News and Media Limited 2010

Obama and the 'Savvy' Bankers

2010-02-17T11:05:00.000-08:00

These bankers aren't 'savvy'!!! They're evil, psychopath, parasitic thiefs!!!

http://www.guardian.co.uk/commentisfree/cifamerica/2010/feb/15/goldmansachs-useconomy

February 16, 2010 by The Guardian/UK
Obama and the 'Savvy' Bankers
by The Guardian/UK

In an interview, the US president described the Goldman Sachs CEO as 'savvy'. So how did he and his crew use their wisdom?
by Dean Baker

Last week, when President Obama was asked about the $9m dollar bonus for Goldman Sachs CEO Lloyd Blankfein, he described Blankfein as a savvy businessman , adding that Americans don't begrudge people being rewarded for success. While the White House later qualified Obama's comment about Blankfein and his fellow bank executives, it's worth examining more closely some of the ways in which Blankfein and the Goldman gang were "savvy".

Perhaps the Goldman gang's best claim to savvy was in buying up hundreds of billions of dollars of mortgages and packaging them into mortgage backed securities, and more complex derivative instruments, and selling them all over the world. Blankfein and Goldman earned tens of billions of dollars on these deals. The great trick was that many of the loans put into these securities were issued by banks filling in phony information so that borrowers could get loans that they would not be able to repay. But this was not Goldman's concern. They made money on the packaging and the selling of the securities.

In fact, Goldman actually recognised that many of these loans would go bad. So they went to the insurance giant AIG and got them to issue credit default swaps against many of the securities it had created. In effect they were betting that their own securities were garbage. Now that is savvy. (It says something else about the highly paid executives at AIG.)

Goldman doesn't just confine its savvy to the US economy; it shares it with the rest of the world as well. According to the New York Times it worked closely with the Greek government over the last decade to help it conceal its budget deficit . The trick was to construct complex financial arrangements that appeared on the books as "swaps", even though they were in fact loans. Greece was adding billions of dollars to its debt, and thanks to the ingenuity of the Goldman crew, no one knew about it until now.

But Goldman's greatest triumph was to get the government to come to its rescue when the financial sector was melting down in the fall of 2008 as the housing bubble that they had helped to fuel began to collapse. The treasury secretary and former Goldman CEO Henry Paulson rushed to Congress and demanded $700bn for the banks, no questions asked. He dragged along Federal Reserve Board chairman Ben Bernanke for support, along with Timothy Geithner, then the important head of the New York Federal Reserve Bank and now President Obama's treasury secretary.

This triumvirate somehow managed to convince Congress that we would have a second Great Depression if it didn't cough up the money immediately with no conditions. At that point Goldman, Morgan Stanley, Citigroup, and most of the other major banks were staring at bankruptcy. While this cascade of bank failures would have been bad news for the economy, there was no plausible scenario in which it would have led to a second Great Depression.

There was also no reason that Congress could not have put conditions on its money. For example, Congress could have dictated that as a condition of getting the money that bankers would get the same sort of paycheques as other workers, that they would get out of highly speculative activity, that the largest banks would be downsized and that the principle would be written down on bad mortgages. At that point, Congress could have told the bank honchos that they had to run around Wall Street naked with their underpants on their head. The bankers had no choice; their banks would crash and burn without government support.

But the savvy Mr Blankfein and the other bankers got the money no questions asked. In fact, Goldman even got the government to pick up the bankrupt AIG's debts . Thanks to the government's intervention, Goldman got paid every penny on its bets with AIG. This came to $13bn, enough money to pay for 4 million kid-years of healthcare under the Children's Health Insurance Program.

No one should doubt that Blankfein is a very savvy banker. Without his ingenuity Goldman Sachs would likely be out of business, its component divisions being auctioned off to the highest bidder. Instead it is making record profits and paying out record bonuses.

But unlike the successful ballplayers to whom President Obama compared Blankfein, Goldman's success is inherently parasitic. It comes at the expense of taxpayers and the productive economy. President Obama must decide whether he stands with the Wall Street banks or whether he stands with the workers and businesses who actually produce wealth.

© Guardian News and Media Limited 2010

Goldman Is About To Be Blacklisted And Possibly Banned In Europe

2010-02-16T14:22:00.000-08:00

http://www.businessinsider.com/simon-johnson-goldman-is-about-to-be-blacklisted-and-possibly-banned-in-europe-2010-2

Simon Johnson: Goldman Is About To Be Blacklisted And Possibly Banned In Europe
Joe Weisenthal
Business Insider
Mon, 15 Feb 2010 07:35 EST

MIT professor Simon Johnson raises some provocative scenarios in regards to Goldman's participation in Greece's scheme to obfuscate its debt levels.

In particular, he expects a full audit of the company, and perhaps some kind of ban:

If the Federal Reserve were an effective supervisor, it would have the political will sufficient to determine that Goldman Sachs
has not been acting in accordance with its banking license. But any meaningful action from this direction seems unlikely.

Instead, Goldman will probably be blacklisted from working with eurozone governments for the foreseeable future; as was the case with Salomon Brothers 20 years ago, Goldman may be on its way to be banned from some government securities markets altogether. If it is to be allowed back into this arena, it will have to address the inherent conflicts of interest between advising a government on how to put (deceptive levels of) lipstick on a pig and cajoling investors into buying livestock at inflated prices.

And the US government, at the highest levels, has to ask a fundamental question: For how long does it wish to be intimately associated with Goldman Sachs and this kind of destabilizing action? What is the priority here - a sustainable recovery and a viable financial system, or one particular set of investment bankers?

US banks facing $1.4tn crisis over commercial property loans • Commercial property set to lose $300bn on $1.4bn of loans • Nearly 3,000 banks face dan

2010-02-14T10:40:00.000-08:00

http://www.guardian.co.uk/business/2010/feb/11/banks-crisis-commercial-property-loans

• Commercial property set to lose $300bn on $1.4bn of loans
• Nearly 3,000 banks face dangerous exposure as loans mature

Andrew Clark in New York
11 February 2010 17.35

Wall Street banks and other financial institutions may be heading for the wall as a further crisis looms in 2011 over commercial property loans. Photograph: Stan Honda/AFP/Getty Images

America's fragile high street banks are bracing themselves for a fresh financial crunch as a wave of commercial property mortgages go sour on offices, shops and factories, causing losses of up to $300bn (£192bn) hitting nearly 3,000 small- and medium-sized financial institutions.

A congressional oversight panel charged with scrutinising the Obama administration's bailout efforts has warned that $1.4tn of loans covering commercial premises will reach maturity between 2011 and 2014. After a plunge in property prices, nearly half of these loans are underwater, with borrowers owing more than their underlying property is worth.

An analysis by the panel found that 2,988 of America's 8,100 banks have potentially dangerous exposure to commercial property loans. The impact could damage hopes of a US economic recovery and could cause a further squeeze in the availability of credit to consumers and businesses.

"Are we arguing that this is a serious problem that we need to get in front of? The answer is yes," said Elizabeth Warren, chairman of the oversight panel. "It's like throwing a handful of sand into the economic recovery."

She said that if banks see that their commercial property liabilities are mounting, they will hold back on lending elsewhere: "They'll tend to husband their money so that it's not available for small business loans."

Although Wall Street banks have made a swift recovery as shares and bond markets look ahead to a long-term economic recovery, prospects remain cloudy for small-town institutions in the US heartland, hit by ongoing credit card defaults and unemployment among customers. Last year, 140 US banks failed and had to be rescued by federal regulators. Already this year, 16 have been seized by the authorities, a rate that points to a similarly high total in 2010.

Defaults on residential mortgages played a key role in sparking the original global financial crisis as hundreds of thousands of US homes went into foreclosure and Wall Street panicked over the diminishing value of complex mortgage-backed securities. Commercial property loans have taken longer to go sour but are emerging as a slow-burning problem.

Many of the problematic commercial mortgages were written at the peak of the property boom. Since then, the economic downturn has caused small businesses to fail, with shops and offices falling vacant. A rising unemployment rate reflects less need for space by companies.

"You have declining values, rising vacancy rates and a decline in renewals on leases," said Bert Ely, an independent US banking analyst. "In some markets, new commercial real estate is still coming on line as construction projects finish up."

He said the issue was particularly acute for regional banks that specialise in lending to local businesses: "Relatively speaking, it's a bigger problem for smaller banks than larger ones. The larger banks tend to be a little bit more diversified in their loans."

Aware of the problems facing smaller financial institutions, President Barack Obama last week announced a plan to use $30bn of the remaining funds in the Treasury's $700bn-bailout fund to provide cheap credit for banks funding small businesses. The money would be available to banks with assets of up to $10bn.

Critics have expressed concern about the principle behind using government funds to prop up weak banks. But the former treasury secretary Henry Paulson, who was the architect of the Treasury's bailout programme in 2008, insisted this week that the so-called Troubled Asset Relief Program would eventually turn an overall profit for US taxpayers: "We will get every penny we put into the banks back."

Bernanke's Bankster's Skimming Operation Exposed

2010-02-08T07:19:00.000-08:00

http://www.smirkingchimp.com/author/mike_whitney

Mike Whitney
Smirking Chimp
Tue, 02 Feb 2010

The reappointment of Fed chairman Ben Bernanke means that the opportunity for change has passed and the reform movement is dead. It means that and that derivatives trading, off-balance sheet operations, securitization, dark pools and high frequency trading will go on much as they have before. It means that the public will continue to be gouged so that a handful of Wall Street sharpies can rake in obscene profits using complex "financial innovations" and over-leveraged debt instruments. It means that the entire system will continue to be put at risk to protect the interests of investment banks and hedge funds. It means that the subsidies, the preferential treatment, and the bailouts will continue to fuel populist rage and exacerbate deepening divisions in society. It means that the status quo has been preserved and that it's "business as usual".

No reform movement will succeed as long as Bernanke is at the Fed. He's an agent of the big banks and a Wall Street loyalist. He's also the author of Too Big To Fail, the controversial theory which provides unlimited state support for financial institutions that are deemed too large or interconnected to fail. TBTF means that capitalism's vital market clearing function can avoided if one is rich or powerful enough. Bernanke repealed capitalism to save his friends.

The Fed's role in the housing fiasco, goes way beyond Alan Greenspan's low interest rates which ignited the frenzy of speculation that led to the crash. It's clear now, that both Greenspan and Bernanke knew that the multi-trillion dollar credit expansion, was based on mortgages to applicants who had no way of repaying the money they had borrowed. It was a complete scam. Recent testimony by FDIC chairman Sheila Bair before the Financial Crisis Inquiry Commission (Jan 14, 2010) provides many of the details. Naturally, Bair's testimony has been ignored by the media.

Sheila Bair: "Federal consumer protections from predatory and abusive mortgage-lending practices are established principally under the Home Ownership and Equity Protection Act (HOEPA), which is part of the Truth in Lending Act (TILA). TILA and HOEPA regulations are the responsibility of the Board of Governors of the Federal Reserve System (FRB) and apply to both bank and non-bank lenders.

HOEPA, which was enacted in 1994, contains specific statutory protections for a narrow category of high cost loans used for mortgage refinancings. These protections include restrictions on prepayment penalties, balloon payments, and extensions of credit without consideration of a borrower's ability to repay. HOEPA defines these high cost loans in terms of threshold levels for either interest rates or points and fees. Many of the toxic mortgage products that were originated to fund the housing boom did not fall within the high cost loan definition under HOEPA. However, many of these toxic products could have been regulated and restricted under another provision of HOEPA that requires the Federal Reserve to prohibit acts or practices in connection with any mortgage loan that it finds to be unfair or deceptive, or acts and practices associated with refinancing of mortgage loans that it finds abusive or not otherwise in the interest of the borrower.

PROBLEMS IN THE SUBPRIME MORTGAGE MARKET WERE IDENTIFIED WELL BEFORE MANY OF THE ABUSIVE MORTGAGE LOANS WERE MADE. A joint report issued in 2000 by HUD and the Department of the Treasury entitled Curbing Predatory Home Mortgage Lending noted that a very limited number of borrowers benefit from HOEPA's protections because of the high thresholds that a loan must exceed in order for the protections to apply. THE REPORT ALSO FOUND THAT CERTAIN TYPES OF SUBPRIME LOANS APPEAR TO BE HARMFUL OR ABUSIVE IN PRACTICALLY ALL CASES. To address these issues, THE REPORT MADE A NUMBER OF RECOMMENDATIONS INCLUDING THAT THE FEDERAL RESERVE USE ITS HOEPA AUTHORITY TO PROHIBIT CERTAIN UNFAIR DECEPTIVE AND ABUSIVE PRACTICES BY LENDERS AND THIRD PARTIES. During hearings held in 2000, consumer groups urged the Federal Reserve to use its HOEPA rulemaking authority to address concerns about predatory lending. Both the House and Senate held hearings on predatory abuses in the subprime market in May 2000 and July 2001, respectively...."

Bernanke--who followed developments in housing in great detail--didn't lift a finger to stop the predatory lending until 2008 when he finally used his regulatory authority to restrict activities in just one small area of the market, closed-end mortgage loans.

Shiela Bair again: "For this new category of higher priced mortgage loans, these changes address many of the abuses which led to the current housing crisis and help assure that mortgage borrowers have stronger, more consistent consumer protections, regardless of the lender they are using or the state where they reside. The rule imposes an "ability to repay" standard in connection with higher-priced mortgage loans. For these loans, the rule underscores a fundamental rule of underwriting: that all lenders, banks and nonbanks, should only make loans where they have documented a reasonable ability on the part of the borrower to repay. The rule also restricts abusive prepayment penalties."

So, you see, that even after the media had started exposing the hijinx that were rampant in the mortgage market, Bernanke STILL refused to act, or rather, only used his regulatory powers on one narrow part of the market. At the very least, Bernanke's failure to respond makes him criminally negligent in the biggest ripoff in US history.

Sheila Bair again: "We believe that an 'ability to repay' standard should be required for all mortgages, including interest-only and negative-amortization mortgages and home equity lines of credit (HELOCs). Interest-only and negative-amortization mortgages must be underwritten to qualify the borrower to pay a fully amortizing payment. Otherwise, the consequences we have seen during this crisis will recur."

Bernanke even refused to enforce the most basic "common sense" regulation, that loan applicants be able to prove that they have the ability to repay their mortgages! No wonder Bair's testimony appears nowhere in the mainstream media; it proves the Fed's culpability in the biggest financial crash since the Great Depression.

But, why? Why would Bernanke refuse to act even though he could see that markets would plummet and millions would lose their homes in foreclosure?

William Seidman, the former head of the FDIC, figured it out back in 1993 when he was cleaning up after the S&L crisis. He said:

"Instruct regulators to look for the newest fad in the industry and examine it with great care. The next mistake will be a new way to make a loan that will not be repaid."

That's it in a nutshell. The banks didn't care if the loans were repaid because they got their money "up front" on volume originations. That's why they were so eager to issue mortgages to people with no income, no collateral, no job, and a bad credit history. It was all a gigantic skimming operation, where banks and brokers got their cut and then bailed out before the whole thing blew up. Bair's testimony shows that the Fed knew what was going on; knew that the loans were garbage, knew that people were being victimized, knew that eventually the bubble would burst and the economy would go into a long-term nosedive.

Bernanke's job was simple; just look the other way while his fatcat buddies steal as much as possible.

Don't believe me? Read Bair's testimony.

We've all been reamed!

Secret summit of top bankers

2010-02-08T07:12:00.000-08:00

Davos just concluded and now these evil elite psychopaths are meeting again? Not a Good Sign!!!

http://www.news.com.au/business/secret-summit-of-top-bankers/story-e6frfm1i-1225827289543

Secret summit of top bankers
George Lekakis and Fleur Leyden
Herald Sun
Sat, 06 Feb 2010

The world's top central bankers began arriving in Australia yesterday as renewed fears about the strength of the global economic recovery gripped world share markets.

Representatives from 24 central banks and monetary authorities including the US Federal Reserve and European Central Bank landed in Sydney to meet tomorrow at a secret location, the Herald Sun reports.

Organised by the Bank for International Settlements last year, the two-day talks are shrouded in secrecy with high-level security believed to have been invoked by law enforcement agencies.

Speculation that the chairman of the US Federal Reserve, Dr Ben Bernanke, would make an appearance could not be confirmed last night.

The event will be dominated by Asian delegations and is expected to include governors of the Peoples Bank of China, the Bank of Japan and the Reserve Bank of India.

The arrival of the high-powered gathering coincided with a fresh meltdown on world sharemarkets, sparked by renewed concerns about global growth and sovereign debt.

Fears countries including Greece, Portugal, Spain and Dubai could default on debt repayments combined with disappointing US jobs data to spook investors.

Australia's ASX 200 slumped 2.4 per cent, to a its lowest close since November 5, echoing a sharp fall on Wall Street.

Asian share markets were also pummelled, with Japan's Nikkei 225 down almost 3 per cent and Hong Kong's Hang Seng slumping 3.3 per cent.

The damage was also being felt by European markets last night with London's FTSE 100 down sagging 1 per cent in early trade.

Sovereign debt fears rippled through to the Australian dollar which was hammered to a four-month low of US86.43 and was trading at US86.77 cents last night.

"This does feel like '08 and '07 all over again whereby we had these sort of little fires pop up and they are supposedly contained but in reality they are not quite contained,'' said H3 Global Advisors chief executive Andrew Kaleel.

"Dubai should have been an isolated incident and now we are seeing issues with Greece, Portugal and Spain.''

It wasn't all bad news with the RBA yesterday upping its Australian growth forecasts and flagging more interest rate rises this year.

The central bank estimates the economy grew 2 per cent in 2009, and will expand by 3.25 per cent in 2010, and by 3.5 per cent in 2011.

The outlook for global growth is likely to be a key theme of the high level central bank talks.

The gathering also comes at an important time for the BIS as it initiates an overhaul of the global banking system which will include new capital rules applying to banks and more stringent standards regulating executive pay.

A key part of the two-day talkfest will be a special meeting of Asian central bankers chaired by the governor of the Central Bank of Malaysia, Dr Zeti Akhtar Aziz.

Influential BIS general manager Jaime Caruana is also expected to take a prominent role in the talks.

Federal Treasurer Wayne Swan will address the central bank officials at a dinner on Monday night.

2010 US bank failure tally now 16 as 1st American State Bank of Minnesota fails

2010-02-07T03:12:00.000-08:00

http://money.cnn.com/2010/02/05/news/economy/bank_failures/

Julianne Pepitone
CNNMoney.com
Fri, 05 Feb 2010 19:11 EST

Regulators shuttered a Minnesota bank on Friday night, for the 16th failure of 2010. The bank, 1st American State Bank of Minnesota, in Hancock, was closed by the state's Department of Commerce. The department named the Federal Deposit Insurance Corp. the receiver.

Customers of the failed bank are protected, however. The FDIC covers accounts up to $250,000.

The FDIC entered into a purchase and assumption agreement, in which it transfers control of the failed bank to a healthy institution, with Community Development Bank, FSB. The 1st American's two branches will reopen Monday under their new ownership.

Community Development will assume 1st American's $18.2 million in assets and $16.3 in deposits. Community Development entered into a loss-share agreement with the FDIC on $11.7 million of 1st American's assets.

The 36 branches of Community Bank and Trust will reopen as branches of SCBT.

Friday's closure will cost the FDIC approximately $3.1 million.

Customers of 1st American can access their money over the weekend by writing checks or using ATMs or debit cards. Checks will continue to be processed, and borrowers should make mortgage and loan payments as usual.

The FDIC also said customers should continue to use their existing branch until they receive notice that the takeover has been completed.

A total of 140 banks failed in 2009, the highest since 1992, when 181 banks failed. But that count is far from 1989's record high of 534 closures which took place during the savings and loan crisis.

Last year's spike has raised concerns about the federal deposit insurance fund, which has slipped into the red for the first time since 1991. The fund was $8.2 billion in the hole as of the end of September. But that includes $21.7 billion the agency has earmarked for future bank failures.

U.S. Banks Abetting Corrupt Regimes, Probe Finds

2010-02-07T03:02:00.000-08:00

http://www.ipsnews.net/news.asp?idnews=50212

Lucy Komisar
Inter Press Service
Wed, 03 Feb 2010

New York - The global bank HSBC may be running offshore accounts for central banks. According to a U.S. Senate investigation, an HSBC subsidiary in London called HSBC Equator Bank had a sister bank in the Bahamas.

According to an internal e-mail, the bank told HSBC USA it had been providing offshore accounts to central banks for 20 years, because the banks wanted to avoid "Mareva" injunctions, legally enforceable orders to freeze funds.

This was revealed by a report to be released Thursday by the Senate Subcommittee on Investigations. A subcommittee staff member who worked on the investigation said, "You have a central bank saying to their banker, I don't want to have to comply with a legally enforceable order so put me offshore. So they did."

HSBC declined to confirm or deny the charge. HSBC told IPS, "HSBC takes compliance matters very seriously. HSBC's record demonstrates a commitment to vigorous enforcement and continuous enhancement of anti-money laundering policies and practices." It would not comment further.

The committee's 350-page report of an investigation that lasted two years focuses on how U.S. banks, lawyers, real estate and escrow agents hide the origins of funds belonging to foreign government officials and other "politically exposed persons" (PEPS) who might be moving illicit cash.

Only banks are required under U.S. law to know their customers and reject dirty money. Subcommittee head Sen. Carl Levin will chair a hearing Thursday on how U.S. agents help launder funds into the U.S. banking system.

In the HSBC case, the committee was looking into money transfers from the National Bank of Angola. Other case studies in the report involve Equatorial Guinea, Nigeria and Gabon.

From 2004 to 2008, Teodoro Nguema Obiang Mangue, son of the president of Equatorial Guinea, employed two lawyers, Michael Berger and George Nagler, to set up U.S. shell companies - Beautiful Vision Inc., Unlimited Horizon, Inc., Sweetwater Malibu LLC, Sweetwater Management Inc., and Sweet Pink Inc. - with no employees or places of business, to open bank accounts and move money. Berger and Nagler will testify at the hearing.

The lawyers used their attorney client and law office accounts to hide the origin of the money and transfer it to an account in Citibank, which would never see a wire transfer from Equatorial Guinea. At this time Obiang was the subject of criminal investigations and complaints in the U.S. and France.

The lawyers moved nearly 30 million dollars in wire transfers to buy a 30-million-dollar residence in Malibu, on the coast of California. An escrow agent, the Sidley Austin law firm, sent 900,000 dollars to help purchase the Malibu mansion.

When the law firm inquired of the Justice Department if it was okay to accept the funds, part of a 21-million-dollar transfer that initially was to buy a Gulfstream jet, the department replied it had no basis for seizing the funds, the report said.

Money moved from Obiang's bank in Equatorial Guinea to a correspondent account at Wachovia Bank which then transferred the funds to Bank of America in Oklahoma City. In a six-month period, about 73 million dollars went through the Wachovia account. Another 37 million dollars went through Citibank.

Committee staff discussed this with the banks. The aide said, "Wachovia said they've decided to add Mr. Obiang's name to the interdiction software just because they don't want to handle his funds. Citibank has declined to take the same step, because they said they're afraid they would get so many hits from Obiang that it would require their staff to take an awful lot of time to research those wire transfers."

A Citibank spokesperson told IPS, "Were not commenting. We were only mentioned a couple of times, so we'll leave it to the report and decline."

In the case of BAI, Banco Africano de Investimentos, a seven-billion-dollar private bank whose largest stockholder is Sonangol, the state oil company, the report shows how HSBC ignored basic anti-money laundering rules.

Aside from Sonangol, the banks' major shareholders are the oil company's top executives, and the bank's clients are people in the oil and diamond industry. "We have a PEP bank," the committee aide said.

BAI opened a correspondent account with HSBC in New York. HSBC tried to find out who owned the bank, which is required by the 2002 U.S. Patriot Act. But 19 percent of the stock was owned by shell companies. And they were being "held" by the bank's president until purchasers could be found.

After it could not determine the true owners, HSBC dropped the matter, said the report. BAI used HSBC to gain access to its wire transfer system so clients could send and receive U.S. dollar transfers across U.S. borders.

In a Nigeria case, the report described how Jennifer Douglas, the fourth wife of Atiku Abubakar, who was vice-president of that country, helped him bring 40 million dollars in suspect funds into the U.S. Some of it was bribe payments made by Siemens, the German electronics company that paid some two billion dollars in global bribes.

Edward Weidenfeld, Douglas's lawyer, received funds from offshore accounts and told the committee that he assumed that it was Abubakar's money. Under the law, he was not required to inquire further.

The late president of Gabon, Omar Bongo, hired a U.S. lobbyist, Jeffrey Birrell, to arrange to buy an armoured car from a Utah company and to purchase a U.S.-made C130 transport aircraft from Saudi Arabia.

He got U.S. permission for the aircraft deal - required because U.S. military sales require permission for resales - and had no trouble moving money from shell companies for the deal. Along the way Birrell was sending out wire transfers directed by Bongo and his advisors, some to accounts in Brussels, Paris and Malta.

The committee aide said after the plane deal fell through, "President Bongo asked him to send 9.2 million dollars to an account in his name not in Gabon but in Malta. The lobbyist says okay. That was money from Ayira in Gabon and he sent 9.2 million dollars to the president in Malta. If that isn't a suspicious transaction, I don't know what is."

Birrell, who used his own accounts as conduits for the funds and would not tell the committee what Ayira was, will testify before the committee.

Sen. Levin, who has been investigating and holding hearings on offshore corruption for at least a dozen years, said at a press briefing Tuesday that corruption "corrodes the rule of law, undermines economic development, it eats away at the fabric of civil society, it destabilises communities, it helps lead to failed states."

He said that even though banks have become more vigilant, "Foreign officials still get access to our financial system at times because U.S. professionals aid and abet their actions."

He said the U.S. Treasury Department should revoke exceptions granted in the Patriot Act in that exempted escrow agents and real estate from knowing their customers and turning away suspect clients.

He noted that the American Bar Association had promised eight years ago that it would take action to require attorneys to adhere to anti-money laundering standards. He said, "It's time they did."

He endorsed World Bank proposals for controls on accepting funds from politically exposed and powerful persons.

Bank of America bosses charged with fraud

2010-02-07T02:48:00.000-08:00

http://www.guardian.co.uk/business/2010/feb/05/bank-america-fraud-charges

Guardian
Fri, 05 Feb 2010 22:47 EST

New York attorney general files civil charges against the bank and its former chief executive, Ken Lewis, over last year's acquisition of Merrill Lynch

Bank of America and two of its former bosses have been charged with fraud for allegedly misleading shareholders during the takeover of Merrill Lynch.

The New York attorney general's office said last night it had filed civil charges against the bank and its former chief executive, Ken Lewis, claiming the bank misled investors about Merrill Lynch before it acquired the Wall Street bank in early 2009. Civil charges were also being filed against Joe Price, the bank's former chief financial officer.

Bank of America has been accused of failing to properly disclose losses at Merrill and bonuses paid to investment bank employees before the deal closed. Attorney general Andrew Cuomo called Bank of America's actions "egregious and reprehensible" in deceiving not only shareholders but also the federal government.

The bank received an additional $20bn (£12.7bn) in government bailout funds in January 2009 to help offset losses it absorbed as part of the Merrill Lynch acquisition. In December, Bank of America repaid the $20bn, plus the initial $25bn it received in government bailout money.

Lewis stepped down as chief executive on 31 December after almost a year of strife that followed the bank's purchase of Merrill Lynch.

Bank of America was quick to rebuff the accusations and said that the company and its executives would vigorously defend themselves against the attorney general's charges.

Spokesman Robert Stickler highlighted the fact that the Securities and Exchange Commission (SEC), the US financial regulator, had reached a settlement to resolve separate federal charges it brought against the bank.

"We are disappointed and find it regrettable that the NYAG has chosen to file these charges, which we believe are totally without merit," he said.

"The evidence demonstrates that Bank of America and its executives, including Ken Lewis and Joe Price, at all times acted in good faith and consistent with their legal and fiduciary obligations," Stickler added. "In fact, the SEC had access to the same evidence as the NYAG and concluded that there was no basis to enter either a charge of fraud or to charge individuals."

Bank of America agreed to pay $150m to shareholders to settle the SEC charges. The agreement must still be approved by US district judge Jed Rakoff.

In September, the bank and the government agreed to a $33m settlement only to have Rakoff reject the agreement. He called the first deal a breach of "justice and morality" and ordered the case to go to trial.

A hearing about the new settlement is scheduled for Monday afternoon.

olcker rule unlikely to move forward in Senate, lawmakers say

2010-02-02T13:36:00.000-08:00

http://www.sott.net/articles/show/202260-Volcker-rule-unlikely-to-move-forward-in-Senate-lawmakers-say

PK Semler
Financial Times
Mon, 01 Feb 2010 18:41 EST

A proposal by former Federal Reserve Chairman Paul Volcker to limit bank's proprietary trading will be either be dropped or significantly modified in the Senate, lawmakers and staffers told dealReporter.

Senate Banking Committee ranking member Richard Shelby (R-AL) said he opposes the so-called Volcker rule and the Obama administration's call to levy a USD 90bn tax on banks. His comments come as House Financial Services Committee Chairman Barney Frank (D-MA) predicted the proposals outlined by President Obama could be law within six months.

Speaking to this news service on Thursday, Shelby said if Democrats push forward with the proposals they risk unravelling much of the bipartisan support already reached regarding the passage of financial regulatory reform in the Senate. Shelby said that the Obama administration risks losing Republican support for the bill if they begin to "politicise" the issue.

However, Shelby said he expects to hold a meeting with Banking Committee Chairman Chris Dodd (D-CT) regarding the way forward on regulatory reform in two weeks time. A Democratic banking committee staffer confirmed that the meeting between Dodd and Shelby will be critical as Dodd needs to determine the level of bipartisan agreement and the timing of bringing the bill through committee and on the Senate floor.

With the election of Republican Scott Brown to the Senate, the Democrats no longer have the necessary 60 votes to force through a Regulatory Reform package, and any bill will need at least some Republican support to pass. A Dodd staffer said the senator is likely to quietly drop or modify many of the recommendations in the Volcker rule to ensure Republican support for regulatory reform.

"Chris is retiring so he wants to end his career with an important regulatory reform bill and he wants to make the bill bipartisan," the staffer said. "He is not going to risk bipartisan support to make the White House happy."

The Democratic staffer said there is an ongoing debate among members of the banking committee about whether the Volcker rule would effectively push risk out of regulated markets and thus ultimately create more risk to the financial system.

Dodd told this news service on Thursday that the banking committee will begin mark-up of the financial regulatory bill in the near future and his committee will hold a committee meeting on the Volcker Amendment on Tuesday with Volcker and a follow-up hearing on Thursday.

Senator Mark Warner, a Democrat on the banking committee from Virginia, also said he has concerns regarding elements of the Volcker rule, many of which are already being dealt with by the committee. He said that one of the problems is in the definition of what constitutes proprietary trading and that regulators should be more proactive in determining what constitutes excessive risk taking by financial players.

Warner also said that the prospective Senate version of the Kanjorski amendment passed by the House also includes using capital adequacy standards to reign in excessive risk taking by financial institutions and that such an approach gives regulators greater flexibility.

A Democrat committee staffer said the Senate committee is loathe to include statutory capital adequacy standards included in the House bill and that such standards should be determing by regulators.

House Financial Services Subcommittee Chairman Paul Kanjorski told this news service he is only 80% to 85% in agreement with the Volcker rule and that many issues raised by Volcker are already included in his amendment passed by the House.

Warner blamed much of the political storm connected to regulatory reform on bankers. He called Goldman Sachs's proposal to lend USD 500m to small businesses over a five-year period derisory, and said banks need to come out in front of the issue regarding compensation.

Warner said he is proposing that US banks set up a USD 1trn fund to invest in US infrastructure projects as a way to avoid the USD 90bn bank levy. A staffer said that Warner is not calling for the banks to place USD 1trn in cash, but to raise such an amount through leverage.

Bernanke agonistes

2010-02-02T12:51:00.000-08:00

Bernanke is a hell-per of the oligarchic anti-christs!

http://www.washingtontimes.com/news/2010/jan/27/bernanke-agonistes/

February 1, 2010
Bernanke agonistes
William F. Shughart II

President Obama pulled out all the stops to clinch Senate approval of his nomination of Ben S. Bernanke to a second four-year term as chairman of the Federal Reserve. Now that the president seems to have enough votes for his nominee in hand, news of yet another "Louisiana Purchase" may be grabbing headlines soon.

Mr. Bernanke has become something of a lightning rod for critics on the left, who think his response to the financial crisis that triggered the recession has been too timid, and for those on the right, who charge that the Fed has been overly aggressive and will be unable to unwind its easy-money policy and unprecedented interventions into financial markets without dire economic consequences.

If nothing else, Mr. Bernanke has proved to be a consummate bureaucrat, spending most of his time in recent months lobbying for major expansions in the Fed's regulatory powers, which, if granted, would take it far beyond the purposes for which it was created in 1913.

As a former Princeton University professor who established his academic reputation by publishing professionally respected papers on the causes of the Great Depression, Mr. Bernanke could have been a better steward of monetary policy. His research complements Milton Friedman and Anna J. Schwartz's monumental "Monetary History of the United States" in showing that the widespread bank failures that followed the Fed's "Great Contraction" of the money supply in 1928 caused credit markets to collapse as the customers of failed banks found it nearly impossible to borrow from surviving institutions that understandably were reluctant to lend to people they did not know.

The Fed's easy-money policy of the mid-1920s fueled rampant real estate and stock-market speculation - and its later reversal of course caused the economy to contract sharply, helping to trigger the Great Depression.

Sound familiar?

Yet Mr. Bernanke denies that monetary policy had anything to do with inflating the recent real estate bubble or that his predecessor's policy of curbing "irrational exuberance" by raising interest rates eventually popped it. He instead blames irresponsible bankers and lax banking regulations. He wants to transform the Fed into a kind of superregulator with responsibility for ferreting out sources of systemic risk that threaten the stability of the financial system, wherever it may rear its head, whether from commercial banks, mortgage lenders, hedge funds, insurance companies or stock brokerages.

In two valuable books published earlier this decade, "Reflections on the Great Depression" and "The Economics of the Great Depression," Randall E. Parker of East Carolina University assembles the transcripts of interviews he conducted with dozens of economists from whom he sought professional opinions on the origins of the Great Depression and the lessons one should learn from it. While one might think the interviews produced twice as many opinions as the number of economists with whom Mr. Parker talked - and sharp differences certainly were revealed - there was unanimous agreement on one point: The Fed should not be an arbiter of stock prices or real estate values.

The Fed is supposed to have one and only one goal - to maintain a sound currency. It lost its direction early on, as its ineptness in responding to the events of 1929 through 1933 amply demonstrates.

Monetary policy may be enigmatic to most Americans, including policymakers. But it would not be far off the mark to interpret the Fed's actions on Mr. Bernanke's watch as being designed to enrich Wall Street, including the cradle of treasury secretaries, Goldman Sachs.

America needs a Fed chairman who will end its destabilizing influence in mismanaging the nation's money and thereby avert cycles of boom and bust. Mr. Bernanke has demonstrated his inability to do that job.

William F. Shughart II is a senior fellow with the Independent Institute (www.independent.org) and a University of Mississippi economics professor.

Robert Higgs on Federal Reserve Transparency

2010-02-02T05:52:00.000-08:00

http://www.youtube.com/watch?v=aQ986cZ4bjI&

Originally aired on 12/1/09 on FoxNews.com "Freedom Watch." Robert Higgs, Senior Fellow at the Independent Institute, discusses increased scrutiny of the Federal Reserve and Chairman Ben Bernanke's nomination for reappointment with Judge Napolitano.

Bernanke Reconfirmed (or How to Win by Epically Failing)

2010-02-01T17:35:00.000-08:00

http://blogs.alternet.org/speakeasy/2010/01/28/bernanke-reconfirmed-or-how-to-win-by-epically-failing/

zachcarter at 2:44 pm
January 28, 2010
Bernanke Reconfirmed (or How to Win by Epically Failing)

Prior to taking on the Fed chairmanship, Bernanke served as the top economic advisor to President George W. Bush. To this day, Bernanke opposes key elements of President Barack Obama’s financial reform proposals, including the creation of a Consumer Financial Protection Agency.

Bernanke is occaisionally compared favorably to his predecessor, Alan Greenspan, who initiated many of the policies Bernanke implemented as Fed Chair. Greenspan, however, appears to have actually learned something from the financial crisis. After watching his entire worldview go donw in flames, The Maestro now supports breaking up the too-big-to-fail banks that hold our economy hostage. Bernanke, however, is against breaking up these financial behemoths, but has not offered a plausible explanation as to why.

At least we now know what it takes to win Republican votes in Senate: Epic managerial failure.

Good and Boring

2010-02-01T16:52:00.001-08:00

http://www.commondreams.org/print/52342

February 1, 2010 by The New York Times
Good and Boring
by The New York Times
by Paul Krugman

In times of crisis, good news is no news. Iceland’s meltdown made headlines; the remarkable stability of Canada’s banks, not so much.

Yet as the world’s attention shifts from financial rescue to financial reform, the quiet success stories deserve at least as much attention as the spectacular failures. We need to learn from those countries that evidently did it right. And leading that list is our neighbor to the north. Right now, Canada is a very important role model.

Yes, I know, Canada is supposed to be dull. The New Republic famously pronounced “Worthwhile Canadian Initiative” (from a Times Op-Ed column in the ’80s) the world’s most boring headline. But I’ve always considered Canada fascinating, precisely because it’s similar to the United States in many but not all ways. The point is that when Canadian and U.S. experience diverge, it’s a very good bet that policy differences, rather than differences in culture or economic structure, are responsible for that divergence.

And anyway, when it comes to banking, boring is good.

First, some background. Over the past decade the United States and Canada faced the same global environment. Both were confronted with the same flood of cheap goods and cheap money from Asia. Economists in both countries cheerfully declared that the era of severe recessions was over.

But when things fell apart, the consequences were very different here and there. In the United States, mortgage defaults soared, some major financial institutions collapsed, and others survived only thanks to huge government bailouts. In Canada, none of that happened. What did the Canadians do differently?

It wasn’t interest rate policy. Many commentators have blamed the Federal Reserve for the financial crisis, claiming that the Fed created a disastrous bubble by keeping interest rates too low for too long. But Canadian interest rates have tracked U.S. rates quite closely, so it seems that low rates aren’t enough by themselves to produce a financial crisis.

Canada’s experience also seems to refute the view, forcefully pushed by Paul Volcker, the formidable former Fed chairman, that the roots of our crisis lay in the scale and scope of our financial institutions — in the existence of banks that were “too big to fail.” For in Canada essentially all the banks are too big to fail: just five banking groups dominate the financial scene.

On the other hand, Canada’s experience does seem to support the views of people like Elizabeth Warren, the head of the Congressional panel overseeing the bank bailout, who place much of the blame for the crisis on failure to protect consumers from deceptive lending. Canada has an independent Financial Consumer Agency, and it has sharply restricted subprime-type lending.

Above all, Canada’s experience seems to support those who say that the way to keep banking safe is to keep it boring — that is, to limit the extent to which banks can take on risk. The United States used to have a boring banking system, but Reagan-era deregulation made things dangerously interesting. Canada, by contrast, has maintained a happy tedium.

More specifically, Canada has been much stricter about limiting banks’ leverage, the extent to which they can rely on borrowed funds. It has also limited the process of securitization, in which banks package and resell claims on their loans outstanding — a process that was supposed to help banks reduce their risk by spreading it, but has turned out in practice to be a way for banks to make ever-bigger wagers with other people’s money.

There’s no question that in recent years these restrictions meant fewer opportunities for bankers to come up with clever ideas than would have been available if Canada had emulated America’s deregulatory zeal. But that, it turns out, was all to the good.

So what are the chances that the United States will learn from Canada’s success?

Actually, the financial reform bill that the House of Representatives passed in December would significantly Canadianize the U.S. system. It would create an independent Consumer Financial Protection Agency, it would establish limits on leverage, and it would limit securitization by requiring that lenders hold on to some of their loans.

But prospects for a comparable bill getting the 60 votes now needed to push anything through the Senate are doubtful. Republicans are clearly dead set against any significant financial reform — not a single Republican voted for the House bill — and some Democrats are ambivalent, too.

So there’s a good chance that we’ll do nothing, or nothing much, to prevent future banking crises. But it won’t be because we don’t know what to do: we’ve got a clear example of how to keep banking safe sitting right next door.

Copyright 2010 The New York Times Company

The Gang of Five, and How They Nearly Ruined Us

2010-02-01T13:07:00.000-08:00

http://www.slate.com/id/2242964/

The little-known reason why investment banks got too big, too greedy, too risky, and too powerful.
By Daniel Gross
Posted Friday, Jan. 29, 2010, at 7:32 AM ET

The surviving investment banks are bristling at efforts aimed at recouping taxpayer losses and forestalling a repeat of the panic of 2008: congression al proposals to tax bonuses, President Obama's planned tax on large banks' liabilities, and his suggestion that banks be prohibited from using taxpayer-insured funds for proprietary trading. That last proposal would " restrict lending, increase risk, decrease stability in the system, and limit our ability to help create jobs," says Steve Bartlett, CEO of the Financial Serv ices Roundtable, the trade group for megabanks.

But if the banks want us out of their business, they should get out of our business first. We've (barely) lived through a 40-year period in which investment banks have imposed themselves on us. They effectively moved into our house, raided our fridge, and set the joint on fire. Now they're complaining that our renovation efforts are cramping their style.

The genesis of the problem was the transformation of investment banks from private partnerships into publicly held companies. The process began when Merrill Lynch went public in 1971. It was followed by the four other horsemen of the 2008 credit apocalypse: Morgan Stanley (1986), Bear Stearns (1985), Lehman Bros. (1994), and Goldman Sachs (1999). The Gang of Five went public so they could compete with the international banking giants that were encroaching on their core business of underwriting stock offerings and advising firms and so they could boost their activities in risky, capital-intensive businesses like proprietary trading. "In order to have a capital base that would support the funding they needed, they had to be public," says Roy Smith, a former Goldman Sachs partner and a professor of finance at New York University.

Going public allowed investment banks to get bigger, which then gave them the heft to mold the regulatory system to their liking. Perhaps the most disastrous decision of the past decade was the Securities and Exchange Commission's 2004 rule change allowing investment banks to increase the amount of debt they could take on their books—a move made at the request of the Gang of Five's CEOs. Before Lehman crashed, it had amassed more than $600 billion in debt. No partnership or private corporation could have accomplished that feat.

The shift to public ownership also replaced the accountability of partnerships—when there are no profits, there are no partner bonuses—with the dangerous fecklessness of public boards. In theory, boards are supposed to oversee the activities of CEOs. In practice, they act as expensive rubber stamps. "These companies had board members who either weren't paying attention or, at Lehman in particular, were deliberately selected because they were unqualified or out of it," says John Gillespie, a former investment banker at Lehman and Bear Stearns and co-author of the new book Money for Nothing: How the Failure of Corporate Boards Is Ruining American Business and Costing Us Trillions. Gillespie notes that in 2008, Lehman's compensation committee included actress Dina Merrill, an heiress to the E.F. Hutton fortune who was 85 years old.

By the time Lehman ended its 14-year run as a public company with a "bagel" (a stock worth zero), some $45 billion in shareholder value had been destroyed. Shareholders didn't do much better with the other four. Bear Stearns was rescued from bageldom when JPMorgan bought it at a fire-sale price with the help of the Federal Reserve. Morgan Stanley and Goldman managed to remain independent and solvent, but only because huge subsidies were made available to them. In late January, Morgan Stanley's stock stood where it did in early 1998.

Shareholders may have suffered, but employees and executives didn't. At investment- banking partnerships, compensation is contentious—epic brawls would take place each December as partners argued over bonuses. But they would take place in private, and the process essentially involved rich people taking money out of one another's pockets. Now it's a zero-sum game, with executives and employees essentially taking billions from shareholders.

The public—as aggrieved owners, taxpayers, and savers—has every right to question the banks' methods and practices. If they don't want us poking around their businesses, they can shrink their balance sheets, replace government-subsidized debt with market-rate debt, stop relying on the Federal Reserve for funding, and get out of our index funds. As film mogul Samuel Goldwyn once said: "Include me out!"

Daniel Gross is the Moneybox columnist for Slate and the business columnist for Newsweek. You can e-mail him at moneybox@slate.com and follow him on Twitter. His latest book, Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation, has just been published in paperback.

ave The Middle Class While Fixing the Banks for Good

2010-01-30T04:53:00.001-08:00

http://www.oilprice.com/article-save-the-middle-class-while-fixing-the-banks-for-good.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+oilpricecom+%28Oil+Price%29

29th Jan 2010
Save The Middle Class While Fixing the Banks for Good

While I’m disgusted with the level of banker’s bonuses and with the obscene leverage practices financial institutions undertook, I do not think the answer to how we clean up them up now is to pile on yet more regulation. To be sure, banks that helped bring down the world economy and then subsequently got bailed out by the taxpayers should not be making billions of dollars in bonuses, especially while the middle class is suffering so greatly. And if we’re going to keep the FDIC in effect, a certain amount of regulation is required to protect taxpayer-backed deposits. But the real remedy does not rest with government, as it was their consistent meddling with markets that engendered the crisis to begin with.

The root cause of the credit crisis did not emanate from banks. It was from the government which manipulated the cost of money and its supply. If banks are given a virtual unlimited amount of money for free, they will find a way to lend it out. That’s what banks do. Also, the demand for money on the part of consumers and the enterprise becomes distorted due to artificially produced low interest rates. As a result the money supply booms and asset bubbles are created. Capital then becomes stretched and balance sheets become overleveraged. Yes, bankers acted irresponsibly and I am in no way exculpated them from their bad behavior. But our central bank gave them the kerosene and then lit the fuse. How can the subsequent explosion of their balance sheets really come as a surprise?

But the government does not have any incentive to relinquish control of how much money is in circulation and what interest rate it should carry. That is where they derive a great portion of their power and influence. Therefore, the solution deemed appropriate on the part of government will be; to tax financial institutions, to place a size limit on banks in order to avoid the too big to fail concept, regulate the trading practices on money derived from deposits and to impose arbitrary and capricious capital requirements.

To be sure, no amount of regulation will be able to abrogate greed, but it will instead serve as an example of the law of unintended consequences. Banks got into trouble and then the government bailed them out. Now the government thinks they own them. But it won't stop with increased fees and regulations. They actually want to dictate the lending practices of banks and force them to write down the principal of their loans. Just listen to Robert Weissman (the President of Public Citizen) who appeared with me on CNBC’s “The Call” on Thursday January 21st. Unfortunately, his views are also shared by James B. Lockhart, who is the former Director of the Oversight Board of the Federal Housing Finance Agency (the regulator of FNM and FRE).

But this slippery slope of statist intervention won’t reverse course until there is a renaissance of markets and a repudiation of government manipulation on the part of American citizens. However, at this juncture we are going full speed ahead in the wrong direction.

The truth is that greed cannot be regulated and banks will find a way around virtually any government led attempt to fetter risk taking. The reality maybe hard to come to terms with but the global experiment with having money created by fiat and interest rates that are set by decree is a miserable failure. Interest rates must be derived through the market function of the demand for money vs. the supply of savings. And money should be backed by something other than a push of a button. Our founding fathers were correct when they provided in the constitution guarantees that our money should only consist of gold and silver. They were afraid of relinquishing the value of our currency to politicians and bankers, who they knew would destroy the middle class by eroding the purchasing power of their money. By having the money supply backed by gold we can finally eliminate the Federal Reserve and the bailout nation it brought about. Banks will lend out money much more prudently, as there will be no longer be a central bank “Put” waiting in the wings. Businesses must also be allowed to fail. Finally, we will be spared from the rampant creation of money, which always finds its way to the elite in society first.

Unless we recognize that fact, bankers will grow fatter on bonuses as the chasm between the very rich and poor grows deeper. The devastation of the middle class will continue and this current economic malaise will only become exacerbated by a steady incursion of the state into the affairs of markets.

Be sure to listen in on my Mid-Week Reality Check and follow my blog Pentonomics at www.greenfaucet.com

Michael Pento
Senior Market Strategist
Delta Global Advisors
866-772-1198
mpento@deltaga.com
www.deltaga.com

Scandal: Albert Edwards Alleges Central Banks Were Complicit In Robbing The Middle Classes

2010-01-30T04:49:00.000-08:00

Go to URL to see graphs.

http://www.zerohedge.com/article/scandal-albert-edwards-alleges-central-banks-were-complicit-robbing-middle-classes

Scandal: Albert Edwards Alleges Central Banks Were Complicit In Robbing The Middle Classes
Albert Edwards
Zero Hedge
Thu, 21 Jan 2010 22:20 EST

We apologize in advance for the New York Magazine-style headline, but this is a report that has to be read by all Senators who are preparing to reconfirm Bernanke for a second term. When voting for the Chairman, be aware that all of America will now look at you as the perpetrators who are encouraging the greatest inter and intra-generational theft to continue, and as prescribed by Newton 3rd law, sooner or later, an appropriate reaction will come from the very same middle class that you are seeking to doom into a state of perpetual penury and a declining standard of living.

America spoke in Massachusetts, and will speak again very soon if you do not send the appropriate signal that you have heard its anger - Do Not Reconfirm Bernanke.

You have been warned.

We present Albert Edwards' latest in its complete form as it must be read by all unabridged and without commentary. These are not the deranged ramblings of a fringe blogger - this is a chief strategist for a major international bank.

Theft! Were the US & UK central banks complicit in robbing the middle classes?

by Albert Edwards, Societe Generale

Mr Bernanke's in-house Fed economists have found that the Fed wasn't responsible for the boom which subsequently turned into the biggest bust since the 1930s. Are those the same Fed staffers whose research led Mr Bernanke to assert in Oct. 2005 that "there was no housing bubble to go bust"? The reasons for the US and the UK central banks inflating the bubble range from incompetence and negligence to just plain spinelessness. Let me propose an alternative thesis. Did the US and UK central banks collude with the politicians to 'steal' their nations' income growth from the middle classes and hand it to the very rich?

Ben Bernanke's recent speech at the American Economic Association made me feel sick. Like Alan Greenspan, he is still in denial. The pigmies that populate the political and monetary elites prefer to genuflect to the court of public opinion in a pathetic attempt to deflect blame from their own gross and unforgivable incompetence.

The US and UK have seen a huge rise in inequality over the last two decades, as growth in national income has been diverted almost exclusively to the top income earners (see chart below). The middle classes have seen median real incomes stagnate over that period and, as a consequence, corporate margins and profits have boomed.

Some recent reading has got me thinking as to whether the US and UK central banks were actively complicit in an aggressive re-distributive policy benefiting the very rich. Indeed, it has been amazing how little political backlash there has been against the stagnation of ordinary people's earnings in the US and UK. Did central banks, in creating housing bubbles, help distract middle class attention from this re-distributive policy by allowing them to keep consuming via equity extraction? The emergence of extreme inequality might never otherwise have been tolerated by the electorate (see chart below). And now the bubbles have burst, along with central banks' credibility, what now?

© Profs Emmanuel Saez and Thomas Piketty

After reading Ben Bernanke's speech, once again denying culpability for the bubble, I really didn't know whether to laugh or cry (remember that Ben Bernanke, like Tim Geithner, was a key member of the Greenspan Fed). I feel like Peter Finch in the film Network, sticking my head out of the window and shouting "I'm as mad as hell and I'm not going to take it anymore!" Although criticism of the Fed (and the Bank of England) has now become louder and more widespread, I feel my longstanding derision for their actions during the so-called "good years" puts me in a stronger position than some to offer further comment.

Opening my 2002-2005 file of old weeklies I did not have to go any further than the first paragraph of the top copy (end of December 2005). "As far as Alan Greenspan's tenure at the Fed is concerned, we have spared few words of derision. We have made plain our views that the supposed US prosperity that has accompanied his tenure has been based on a grotesque mountain of debt. We have likened the economy to a Ponzi scheme which will ultimately collapse. He has allowed the funding of strong economic activity by mortgaging the US's future against one bubble (equity) and then another (housing), which is now beginning to implode". These are almost consensus thoughts now, but not then.

The pigmies that populate the political and monetary elites prefer to genuflect to the court of public opinion. Blaming the banks is simply a pathetic attempt to deflect the public fury from their own gross and unforgivable incompetence. We have stated before that banks are not the primary cause of the bust. Just as in Japan, a decade earlier, bank problems are a symptom of the bust. It is the monetary and regulatory authorities that are responsible for this mess. And it is not just obvious in retrospect. It was perfectly obvious from the beginning.

I was shocked by a recent survey of Wall Street and business economists, published in the Wall Street Journal (see 'Bernanke View Doubted', 14 Jan). Asked whether they agreed or disagreed with the proposition 'excessively easy Fed policy in the first half of the decade helped cause a bubble in house prices', some 42, or 74% agreed with the proposition. So unbelievably there are still 12 economists surveyed who did not agree! Even more incredible, a majority of academic economists did not agree with the proposition. Maybe they have sympathy for a fellow academic or maybe they actually believe the preposterous proposition that the western central banks were not in control of the bubbles which were primarily due to tidal waves of surplus savings washing across from Asia.

John Taylor shows this to be nonsense. There was no global savings glut (see chart below)

© John Taylor

John Taylor is well known for his famous "Taylor Rule" for the appropriate level of interest rates and he has been very vocal in his criticism of Fed laxity in the aftermath of the Nasdaq crash in his paper 'The Financial Crisis and Policy Responses: An Empirical Analysis of What Went Wrong', Nov. 2008 and elsewhere. His thesis is simple. Lax monetary policy caused the boom in housing upon which euphoric credit excesses were built. The subsequent bust was an inevitable mirror image of the boom. This simply would not have occurred had the Fed (and the Bank of England) acted earlier to tighten policy as shown in the Taylor's counterfactual profiles (see charts below).

© John Taylor

More recently, the San Francisco Fed published a paper this month showing that those countries which saw the steepest run-up in house prices over the last decade also saw the largest rise in household sector leverage (see charts below and here). Of course the causality runs both ways. Loose monetary policy generates higher borrowing which pushes up house prices. Subsequently this prompts other households to borrow against the rising value of their houses to finance consumption via net equity extraction.

© Federal Reserve Bank of San Franciso

Generally most commentators have fallen for the populist line that the banks are to blame. Very rarely does a leading commentator pin the blame where it deserves to be: on the central banks. Hence, I was very interested to read the Financial Times Insight column on Tuesday from the deep-thinking columnist, John Plender (interestingly his title in the print edition was "Blame the central bankers more than the private bankers" was changed to "Remove the punchbowl before the party gets rowdy" in the web edition).

Plender's point is classic Minsky. An unusually long period of economic stability, also known as The Great Moderation, engineered by Central Bank laxity inevitably created the conditions for the subsequent bust. "Central banks clearly bear much responsibility for past excessive credit expansion. The Fed's gradualist and transparent approach to raising rates in middecade also ensured that bankers were never shocked into a recognition that unprecedented shrinkage of bank equity was phenomenally dangerous. Despite the popular perception that financial innovation caused so much of the damage in the crisis, the rise in bank leverage was a far more important factor". His point that it takes guts to remove the punch-bowl when the party is in full swing is spot on. The Fed and the Bank of England were both gutless and spineless. Their love affair with The Great Moderation meant they simply were not prepared to tolerate a little more pain now to avoid a Minsky credit bust and massive unemployment later.

But what is the relationship, if any, between this extreme central bank laxity in the US and UK and these countries being at the forefront for the extraordinary rise in inequality over the last few decades (see cover chart)? And does it matter?

I was reading some typically thought-provoking comments from Marc Faber in his 'Gloom, Boom and Doom' report about current extremes of inequality. It reminded me that our own excellent US economists Steven Gallagher and Aneta Markowska had also written on this. To be sure, the rise in inequality has been staggering in the US in recent years (see charts below).

© Emmanuel Saez, University of California / Sudden Debt, USDA

It is well worth visiting the website of Emmanuel Saez of the University of California who has written extensively on this subject and now has updated his charts up until the end of 2008 (data available in Excel Format). The New York Times reported on the recently released Census Bureau data and showed not only that median income had declined over the last 10 years in real terms, but that this is the first full decade that real median household income has failed to rise in the US. What is also so interesting from Professor Saez's cross-sectional research is how inequality has clearly risen fastest in the Anglosaxon, freemarket economies of the US and the UK (also note that France, with much higher levels of equality, saw much more subdued growth in household leverage).

Our US economists make the very interesting point (similar to Marc Faber) that peaks of income skewness - 1929 and 2007 - tell us there is something fundamentally unsustainable about excessively uneven income distribution. With a relatively low marginal propensity to consume among the rich, when they receive the vast bulk of income growth, as they have, then the country will face an under-consumption problem (see 9 September, The Economic News. Marc Faber also cites John Hobson's work on this same topic from the 1930s).

Hence, while governments preside over economic policies which make the very rich even richer, national consumption needs to be boosted in some way to avoid underconsumption ending in outright deflation. In addition, the middle classes also need to be thrown a sop to disguise the fact they are not benefiting at all from economic growth. This is where central banks have played their pernicious part.

I recalled seeing another article from John Plender on this topic back in April 2008. His explanation for why there had been so little backlash from the stagnation of ordinary people's income at a time when the rich did so well was simple: "Rising asset prices, especially in the housing market, created a sense of increasing wealth regardless of income. Remortgaging homes over a long period of declining interest rates provided a convenient source of funds via equity withdrawal to finance increased consumption."

Now you might argue central banks had no alternative in the face of under-consumption. Or you might conclude there was a deliberate, unspoken collusion among policymakers to "rob" the middle classes of their rightful share of income growth by throwing them illusionary spending power based on asset price inflation. We will never know.

But it is clear in my mind that ordinary working people would not have tolerated these extreme redistributive policies had not the UK and US central banks played their supporting role. Going forward, in the absence of a sustained housing boom, labour will fight back to take its proper (normal) share of the national cake, squeezing profits on a secular basis. For as Bill Gross pointed out back in PIMCO's investment outlook 'Enough is Enough' of August 1997, "When the fruits of society's labor become maldistributed, when the rich get richer and the middle and lower classes struggle to keep their heads above water as is clearly the case today, then the system ultimately breaks down." In Japan, low levels of inequality and inherent social cohesion prevented a social breakdown in this post-bubble debacle. With social inequality currently so very high in the US and the UK, it doesn't take much to conclude that extreme inequality could strain the fabric of society far closer to breaking point.

Is Bernanke Hiding A Smoking Gun?

2010-01-30T04:42:00.001-08:00

http://www.huffingtonpost.com/2010/01/26/is-bernanke-hiding-a-smok_n_437509.html

Ryan Grim
Huffington Post
Wed, 27 Jan 2010 20:51 EST

A Republican senator said Tuesday that documents showing Federal Reserve Board Chairman Ben Bernake covered up the fact that his staff recommended he not bailout AIG are being kept from the public. And a House Republican charged that a whistleblower had alerted Congress to specific documents provide "troubling details" of Bernanke's role in the AIG bailout.

Sen. Jim Bunning (R-Ky.), a Bernanke critic, said on CNBC that he has seen documents showing that Bernanke overruled such a recommendation. If that's the case, it raises questions about whether bailing out AIG was actually necessary, and what Bernanke's motives were.

A letter Bunning sent Monday to Banking Committee Chairman Chris Dodd (D-Conn.) also refers to an "[e]mail exchange regarding restructuring of assistance to AIG, initiated by Treasury Secretary Timothy Geithner" in March 2009.

Senators will be voting on Bernanke's confirmation for a second term in the coming days. But only senators on the Banking Committee have had access to documents that illuminate just what decisions he made and how he made them. And that access only came after Bunning publicly complained that Dodd and Sen. Richard Shelby (R-Ala.) were the only members of the committee could see them.

Meanwhile, Rep. Darrell Issa (R-Calif.), who has been investigating the AIG bailout in his role as ranking Republican on the House Oversight and Government Reform Committee, said that a whistleblower has informed him of "troubling details" of Bernanke's role in the bailout.

There may be nothing incriminating in the documents, but without access to them, the Senate will be voting to confirm him in the dark.

Senators from both parties who say they will vote to confirm Bernanke credit him with deft actions that averted a second Great Depression. Those actions, they argue, outweigh what blame he deserves for causing the crisis in the first place.

"He's done a very good job in the last year. And but for his work, we would be in a very different position in this country today," said Dodd Monday. "Now that's hard to prove a negative. But the fact of the matter is, our entire financial system might have collapsed but for his leadership."

On Monday, Bunning sent a letter to Dodd, asking him to subpoena the emails and other documents. Bunning and other committee members have thus far had to view the documents at the Federal Reserve and are bound by confidentiality from revealing their contents. "He thinks that all members of the Senate should have access to the documents he's seen," said Bunning spokesman Mike Reynard.

Issa, in a letter to his committee's chairman, Ed Towns (D-N.Y.), asked for a similar subpoena and even specified exactly which documents he wants: Those tagged electronically as "sb-aig-01000092 to sb-aig-010000125" and "Draft Memo on AIG.pdf."

Towns spokeswoman Jenny Rosenberg said that Towns would decide on a subpoena after Wednesday's hearing on the AIG bailout.

Bunning, in his letter to Dodd, is equally specific, citing nine particular documents that the Senate should review before voting to confirm Bernanke:
1. Agenda and materials for 11/12/2008 meeting of the Board of Directors of AIG (containing minutes of previous board meetings). [AIG_11.12.08_BOD.pdf]

2. Agenda and materials for 1/14/2009 meeting of the Board of Directors of AIG (containing minutes of previous board meetings). [AIG_01.14.09_BOD.pdf]

3. Memo "Issues Related to Possible IPC Lending to American International Group" presented to the Board of Governors for approval of lending to AIG, dated 9/15/2008. [pages sb-aig-01000092 to sb-aig-01000125]

4. Email from Chairman Bernanke including a draft of the memo to be presented to the Board of Governors for approval of lending to AIG, dated 9/15/2008. [Draft Memo on AIG.pdf]

5. Memo "Proposed Securities Lending Facility for American International Group, Inc. ("AIG")" presented to the Board of Governors for approval of the securities lending facility for AIG, dated 10/6/2008. [Board Mtg_10-6-2008_8.35.05_AM.pdf]

6. Memo "Proposed Steps to Stabilize American International Group, Inc." presented to the Board of Governors for approval of restructuring assistance to AIG and creation of Maiden Lane II & III, dated 11/6/2008. [AIG restructuring Board memo Final (Nov. 6, 2008)_11-6-2008_4.55.19_PM.pdf]

7. Spreadsheet describing the assets purchased by Maiden Lane II and Maiden Lane III. [BLK_12.31.08_MLII & III cusip data.xls]

8. Spreadsheet listing derivative transactions and counterparties for Maiden Lane III. [List of Derivative Transactions.pdf]

9. Email exchange regarding restructuring of assistance to AIG, initiated by Treasury Secretary Timothy Geithner, dated 03/01/2009. [AIG Emails, Part3.pdf]

Secret Banking Cabal Emerges From AIG Shadows

2010-01-30T04:15:00.000-08:00

http://www.bloomberg.com/apps/news?pid=20601039&sid=aaIuE.W8RAuU

David Reilly
Bloomberg News
Fri, 29 Jan 2010 06:06 EST

The idea of secret banking cabals that control the country and global economy are a given among conspiracy theorists who stockpile ammo, bottled water and peanut butter. After this week's congressional hearing into the bailout of American International Group Inc., you have to wonder if those folks are crazy after all.

Wednesday's hearing described a secretive group deploying billions of dollars to favored banks, operating with little oversight by the public or elected officials.

We're talking about the Federal Reserve Bank of New York, whose role as the most influential part of the federal-reserve system -- apart from the matter of AIG's bailout -- deserves further congressional scrutiny.

The New York Fed is in the hot seat for its decision in November 2008 to buy out, for about $30 billion, insurance contracts AIG sold on toxic debt securities to banks, including Goldman Sachs Group Inc., Merrill Lynch & Co., Societe Generale and Deutsche Bank AG, among others. That decision, critics say, amounted to a back-door bailout for the banks, which received 100 cents on the dollar for contracts that would have been worth far less had AIG been allowed to fail.

That move came a few weeks after the Federal Reserve and Treasury Department propped up AIG in the wake of Lehman Brothers Holdings Inc.'s own mid-September bankruptcy filing.

Saving the System

Treasury Secretary Timothy Geithner was head of the New York Fed at the time of the AIG moves. He maintained during Wednesday's hearing that the New York bank had to buy the insurance contracts, known as credit default swaps, to keep AIG from failing, which would have threatened the financial system.

The hearing before the House Committee on Oversight and Government Reform also focused on what many in Congress believe was the New York Fed's subsequent attempt to cover up buyout details and who benefited.

By pursuing this line of inquiry, the hearing revealed some of the inner workings of the New York Fed and the outsized role it plays in banking. This insight is especially valuable given that the New York Fed is a quasi-governmental institution that isn't subject to citizen intrusions such as freedom of information requests, unlike the Federal Reserve.

This impenetrability comes in handy since the bank is the preferred vehicle for many of the Fed's bailout programs. It's as though the New York Fed was a black-ops outfit for the nation's central bank.

Geithner's Bosses

The New York Fed is one of 12 Federal Reserve Banks that operate under the supervision of the Federal Reserve's board of governors, chaired by Ben Bernanke. Member-bank presidents are appointed by nine-member boards, who themselves are appointed largely by other bankers.

As Representative Marcy Kaptur told Geithner at the hearing: "A lot of people think that the president of the New York Fed works for the U.S. government. But in fact you work for the private banks that elected you."

And yet the New York Fed played an integral role in the government's bailout of banks, often receiving surprisingly free rein to act as it saw fit.

Consider AIG. Let's take Geithner at his word that a failure to resolve the insurer's default swaps would have led to financial Armageddon. Given the stakes, you might think Geithner would have coordinated actions with then-Treasury Secretary Henry Paulson. Yet Paulson testified that he wasn't in the loop.

"I had no involvement at all, in the payment to the counterparties, no involvement whatsoever," Paulson said.

Bernanke's Denials

Fed Chairman Bernanke also wasn't involved. In a written response to questions from Representative Darrell Issa, Bernanke said he "was not directly involved in the negotiations" with AIG's counterparty banks.

You have to wonder then who really was in charge of our nation's financial future if AIG posed as grave a threat as Geithner claimed.

Questions about the New York Fed's accountability grew after Geithner on Nov. 24, 2008, was named by then-President- elect Barack Obama to be Treasury Secretary. Geither said he recused himself from the bank's day-to-day activities, even though he never actually signed a formal letter of recusal.

That left issues related to disclosures about the deal in the hands of the bank's lawyers and staff, rather than a top executive. Those staffers didn't want details of the swaps purchase to become public.

New York Fed staff and outside lawyers from Davis Polk & Wardell edited AIG communications to investors and intervened with the Securities and Exchange Commission to shield details about the buyout transactions, according to a report by Issa.

That the New York Fed, a quasi-governmental body, was able to push around the SEC, an executive-branch agency, deserves a congressional hearing all by itself.

Later, when it became clear information would be disclosed, New York Fed legal group staffer James Bergin e-mailed colleagues saying: "I have to think this train is probably going to leave the station soon and we need to focus our efforts on explaining the story as best we can. There were too many people involved in the deals -- too many counterparties, too many lawyers and advisors, too many people from AIG -- to keep a determined Congress from the information."

Think of the enormity of that statement. A staffer at a body with little public accountability and that exists to serve bankers is lamenting the inability to keep Congress in the dark.

This belies the culture of secrecy obviously pervasive within the New York Fed. Committee Chairman Edolphus Towns noted during the hearing that the bank initially refused to disclose even the names of other banks that benefited from its actions, arguing this information would somehow harm AIG.

'Penchant for Secrecy'

"In fact, when the information was finally released, under pressure from Congress, nothing happened," Towns said. "It had absolutely no effect on AIG's business or financial condition. But it did have an effect on the credibility of the Federal Reserve, and it called into question the Fed's penchant for secrecy."

Now, I'm not saying Congress should be meddling in interest-rate decisions, or micro-managing bank regulation. Nor do I think we should all don tin-foil hats and start ranting about the Trilateral Commission.

Yet when unelected and unaccountable agencies pick banking winners while trying to end-run Congress, even as taxpayers are forced to lend, spend and guarantee about $8 trillion to prop up the financial system, our collective blood should boil.

(David Reilly is a Bloomberg News columnist. The opinions express

That Gift $ Could Have Created a Socialist Bank Like Healthy N. Dakota Has

2010-01-28T15:13:00.000-08:00

http://www.opednews.com/articles/That-Gift--Could-Have-Cre-by-Jay-Janson-100123-369.html

January 25, 2010
That Gift $ Could Have Created a Socialist Bank Like Healthy N. Dakota Has
By Jay Janson

Almost a year ago, at the Ethical Cultural Society, we heard Nobel Prize in Economics Laureate Joseph Stiglitz calmly explain in simple words how the government, then already run by the Obama administration, could have better used the trillion dollars given to mammoth private investment banks to rescue CEOs - who had wildly mismanaged their speculations and created a world crisis and their own demise into bankruptcy - to fund instead a government bank of its own. (He left unmentioned, prosecution of such bankers guilty of crimes against humanity.)

As a clear and long successful example of what Prof. Stiglitz was proposing, one may note that "The Bank of North Dakota is the only state-owned bank in America--what Republicans might call an idiosyncratic bastion of socialism. It also earned a record profit last year even as its private-sector corollaries lost billions," Josh Harkinson in How the Nation's Only State-Owned Bank Became the Envy of Wall Street, Mother Jones, 3/27/09
click here

North Dakota is just about the only state of the union which is not in some kind of financial difficulty. It neither faced a budget deficit for its 2007-2009 biennium nor for its 2009-2011 biennium, while "46 of 50 states are insolvent and could be filing Chapter 9 bankruptcy proceedings in the next two years." as Ellen Brown notes in HOW NORTH DAKOTA'S BANKING SYSTEM COULD HELP US GET OUT OF THIS MESS, Global Research, 3/4/09
click here

It seems the power elite of Wall Street are going to allow its U.S. President to close the barn door a crack now that public rage about so many of their horses having been stolen is getting up to threatening proportions. Its news media are assigned to call this patch up work a form of populist politics.

But Stiglitz spoke not of tinkering with regulating a failed system, but of a new creative start to put credibility into banking and America back to work.

A U.S. Government Bank could more easily, naturally and patriotically provide credit for legitimate industrial and commercial, business, especially small business starting up, and even for cultural and for enterprises that could show some community collateral and/or reasonably good expectations, for a U.S.Government Bank would function as a service industry, in more or less the way the history of private banking began with the trustworthy Fugger family's convenient letters of exchange six hundred years ago in Germany. In the ancient world, banking is said to have existed before forms of money as a means of records of inventory and exchange of goods and funding of projects.

A bank operating strictly as a service industry has the advantage of not needing to show a profit margin high enough to be able to attract and keep investors from seeking more lucrative opportunities for capital growth elsewhere in the market.

Much in the same way, other government agencies are largely free of such an onus to grow beyond founding purposes, principles and parameters that justify their existence. The U.S. Post Office, for instance, is not obligated to dire and desperate competition with DHL and Federal Express to continually expand itself - unless it seems appropriate to its role in providing a basic and limited public service within the bounds of the law which established this particular public enterprise.

The Social Security Administration of the U.S. Government does not compete with, nor is a hindrance to, private insurance companies providing further insurance in case of incapacity or death, for the law limits it from delving into areas beyond its basic safety net purpose. (But the existence of Social Security does insure that insurance companies cannot take its costumers for a ride out of utter fear of no protection from calamity.)

In other fields as well, public entities function undeniably well, yet do not inhibit private enterprise except in curtailing squeezing a defenseless society lacking some basic service.

A plethora of private insurance corporations operate in Germany, offering, to those who can afford it, higher and more specialized coverage than the German National Health Insurance, which Chancellor Bismarck instituted in 1883, which of course does not encroach beyond its comprehensive but limited mandate. Everyone goes to whatever doctor they want and when necessary pays that extra above what the national insurance covers (this writer's student experience in 1953).

Private insurance companies exist everywhere in countries that insure their citizens' health coverage. Citizens need not look to private charity or suffer from government condescension in clinics for the poor, with sliding scales to leach out whatever money possible.

Germany has many prestigious private universities alongside fine state universities as in the U.S., but Germans enjoy the right to free secondary education if one can pass entrance exams, and receive a living stipend as well - also given to accepted foreign students. It is plain that the German government providing free education does not interfere with private enterprise in that field. It merely prevents the banks from taking a cruel profit from a young person's desire for learning.

The argument of America's absolute capitalists extremists, that government is some sort of beast divorced from what the electorate has chosen and is primarily interference with private rights especially the rights of gangs of corporations, is turned on its head when it comes to American boys (and now girls) sacrificing their lives for that same government, which in war time is presented as a noble creation of democracy and the will of the people.

Only in America is this farcical contradiction so well papered over by capitalist owned conglomerates that oversee the national information network from cradle to grave of a massively beguiled and gullible public.

How to have factually complete newscasts in historical context with the intention to educate, rather than to propagandize, edify rather than commodify, uplift rather than downgrade - all in the name of promoting commerce and consumerism for private interests? This a topic for another article, but some additional public enterprise is surely missing and needed to protect citizens and nation from the dissemination of intentionally false and frightening information.

The other luminary on the discussion panel that evening at Ethical Culture in New York when Prof. Stiglitz brought forth his expert, obvious though not-so-new reformist idea of a government bank to bypass the rot in our private banking industry was Barbara Ehrenreich, who used the occasion to state what was for most of the audience even more obvious, namely, that the answer to all the wayward private speculation caused misery is socialism; a socialism we have beginnings of in our fine U.S.Post Office, Social Security Administration, Medicare and Veterans Hospitals System and the socialized health benefits which the members of Congress voted themselves a long time ago.

Both Stiglitz and Ehrenreich cited how the corporate investment banks, through their political power, forced government (their government, not ours) to assume responsibility for even their limited liability in order to keep them solvent.

("Limited liability is supposed to encourage enterprise but it has also been argued that it distorts the free market by allowing the entrepreneur to externalize some risk and impose it on society at large." [Wikipedia])

A physicist like Albert Einstein might have called the trillion dollar bailout/payout to Wall Street a form of anti-socialism, perhaps even government complicity in anti-American activities or Anti-Americanism. How Ironic.

Davos bankers to lobby against Obama reforms

2010-01-28T14:38:00.000-08:00

http://www.guardian.co.uk/business/2010/jan/25/davos-bankers-lobby-obama/print

World Economic Forum starts on Wednesday just days after US president announced wide-ranging clampdown on the banking industry
Katie Allen
guardian.co.uk,
25 January 2010

Davos, a Swiss ski resort, is heavily fortified during the annual World Economic Forum. Photograph: Christian Hartmann/Reuters

Banking chiefs will head to Davos this week where they are expected to use the Swiss ski resort's annual economics jamboree to quietly lobby against Barack Obama's proposed clampdown on risk-taking and mergers.

The top management of several of the world's biggest investment banks will attend the World Economic Forum's meeting, which kicks off on Wednesday and coincides with the banking sector's bonus season. It comes just days after the US president unveiled plans for the most stringent rules on financial institutions for decades as he seeks to prevent a repeat of the financial crisis that prompted costly government bailouts of banks.

In the UK, City minister Lord Myners has called for an independent review of the investment banking industry and the "greed is good" culture that he says has permeated many areas of society.

Bank chiefs braving the public spotlight at the glitzy Davos resort – who will include Citigroup's Vikram Pandit and Bank of America's Brian Moynihan – will put their own case to regulators while also networking with clients and colleagues.

Their focus will largely be on Obama's proposals for stopping banks from taking risky bets with their own capital to make money on the financial markets – a practice known as "proprietary trading".

According to a report in this morning's Financial Times, some senior bankers will argue that banks' proprietary activity was not a key source of the credit crisis – and so should not be stamped out.

Fresh from winning the battle for Cadbury, Kraft chairman Irene Rosenfeld will also be in Davos rubbing shoulders with regulators and ministers, including business secretary Lord Mandelson.

Mandelson last week washed his hands of responsibility for Cadbury's £11.9bn takeover by the American conglomerate, insisting it was a decision for shareholders.

Vatican bank accused of laundering

2010-01-25T09:37:00.000-08:00

http://rt.com/Top_News/2010-01-23/vatican-bank-money-laundering.html#

23 January, 2010, 09:19

The Vatican is facing some awkward questions after an investigation was launched into its alleged involvement in a money-laundering scheme.

The financial scandal was triggered by a report in an Italian magazine that claimed the Vatican bank laundered some $200 million.

The alleged secrets of the Vatican have often provided rich material for fictional works, such as blockbuster film Angels and Demons, but the Holy See now has to deal with a case equally shrouded in mystery.

The Vatican Bank has been accused of laundering $200 million through the accounts of Italy’s UniCredit Bank, one of the world's largest financial institutions.

An investigation into the case became public after Italian magazine Panorama published details from tax police and prosecutors.

“This corruption is continuing on a regular basis in the Vatican,” claimed lawyer Janathan Levy. “Again, there’s no reason for a religion to have a bank that does worldwide commercial activities, dealing in gold, dealing in insurance, dealing in property and then hiding behind the Roman Catholic Church.”

The London Telegraph recently reported that the Vatican Bank is the eighth most popular destination for laundered money, ahead of the Bahamas, Switzerland and Liechtenstein. The reason for this is that you cannot trace any movement of cash within the bank.

“I had the privilege to walk inside this bank. It’s nothing like a bank,” shared lawyer Massimiliano Gabrieli. “If you go there you deposit or withdraw money without limit, without any kind of receipt for the bank and for the client. All you have is a single card with a number.”

A lawyer representing the Vatican dismissed the allegations that it is some sort of clandestine organization where accounts are not kept.

Jeffrey S. Lena, lawyer for the Institute for Religious Works, said that “This is all part of a generalized attack on the Catholic Church from the position of the Orthodox Christians, based upon a theory of Catholic hegemony in the Eastern part of Europe. Some are using legal cases against the Vatican to pursue a political agenda”.

How Wall St Destroyed Private Medicine

2010-01-23T11:57:00.000-08:00

http://www.vdare.com/roberts/100121_wall_st.htm

How Wall St Destroyed Private Medicine
Paul Craig Roberts
VDare
Thu, 21 Jan 2010 12:06 EST

At my annual check-up, my doctor handed me a sheet explaining the reasons for office fee increases for Medicare Patients. It is worth reporting at length.

Medicare fixes the prices for Medicare patients' health care. All office charges for Medicare, including office visit charges, have been set by the Federal government since 1984. In real terms (adjusted for inflation), these fixed prices are less today than they were three decades ago.

During the last four years, there have been large decreases in Medicare reimbursements for laboratory services provided in-house by private physicians. Payments for in-office blood work, for example, have been cut 35 to 47 percent. Yet, a physician's overhead continues to increase as a result of uncontrollable costs, such as property taxes, building insurance, electricity, maintenance, malpractice and workers compensation insurance.

As one result, my doctor had to close both the x-ray unit and the state and federally licensed medical laboratory on his premises. Now patients are inconvenienced by having to go to other locations for services that formerly were provided by the doctor at lower cost. A one day medical check-up is now a multiple day event and more expensive.

While Medicare payments to doctors have been cut, regulations have been increasing: "Almost every outside diagnostic procedure (CT, MRI scan, sonogram) ordered by this office now has to be pre-approved by some outside agency. Many medications are now requiring pre-approval or step therapy. Each requires filling out 1-2 pages of forms and/or two or more phone calls. This requires personnel time and therefore more cost. Consultant referrals are requiring more paperwork and time to schedule."

My doctor has more people employed doing paperwork than he does delivering health care.

While Medicare payments for in-office services to private doctors, including those for blood work and x-ray units, were drastically cut, payments to outside corporate facilities for the same services were increased. It is obvious what is afoot. Corporate lobbies are using their whores in Congress to shift income from physician offices to corporate labs, corporate medical service providers, and hospitals that are owned by national corporations.

Legislation that cuts payments to private physicians and increases the payments to large corporate entities is intended to destroy private practice and to create in its place corporate bureaucracies in which doctors are wage slaves. The physician's income is diverted to shareholders, CEO bonuses, and Wall Street. Health care is being replaced with health business.

As a result of the way American medicine is being reconstructed, patients will cease to have a doctor whom they know and who knows them. Important information is lost in a system of bureaucratized "health care" in which a patient sees whatever face happens to be on duty at the corporate provider. Impersonal health care thus brings a cost of its own, and its quality can be low compared to private practice. Indeed, the U.S. is creating a "health care" system that is more costly and less efficient than single-payer national health systems. But it will enrich corporations and provide play for Wall Street.

It turns one's stomach to watch libertarians and "free market economists" defend bureaucratized impersonal health care as "free market medicine." There is no free market present. Corporate lobbies and campaign contributions use government power to create bureaucratized monopolies that destroy medicine for the practitioner and the patient. Wall Street pushes for greater shareholder earnings, which are achieved by denying care.

Just as independent businesses have been destroyed by corporate chains from Wal-Mart to auto parts to fast food, medicine is being destroyed by monopoly capital. The risks of starting a private business today are many times higher than they were a half century ago. Chains have turned Americans who once were independent business men and women into employees.

The fate of the health care bill demonstrates the power of private lobbies. What was to be health care for Americans was instantly transformed into 30 million new patients for the private health insurance industry. The "solution" to tens of millions of Americans being unable to afford health care is a law that requires them to purchase a private health care policy or be annually fined. As most of these uninsured Americans cannot afford to purchase a private policy, the plan is for the federal government to use taxpayers' money to subsidize their purchase of a policy from private companies.

In other words, tax money is being diverted to the pockets of private businesses. This is par for the course in "capitalist" America.

In today's America, Karl Marx's criticisms of capitalism are understated. Wherever one looks, the scene is one of the government using taxpayers' money to enrich private interests. Taxes are collected from people who can barely make it, and the revenues are transferred to multi-millionaires and billionaires. The federal government piles debt on the backs of heavily-burdened and dispossessed Americans in order that investment banksters can pay annual bonuses that exceed the lifetime earnings of most Americans.

Every aspect of the US military has been mined for private profit. Supply and other functions for the military, such as those provided by Halliburton and Blackwater, services once provided by the military itself at low cost, have been privatized. These services now cost many multiples of the cost to taxpayers of in-house military provision.

The "war on terror" enriches the armaments/security industry and enables Israeli territorial expansion. The Israel Lobby and the munitions industry are major sources of funding for U.S. political campaigns.

Prisons have been privatized in order to create profits for private corporations. The prisons require high incarceration rates in order to be profitable. Consequently, "freedom and democracy" America not only has the highest incarceration rate and the highest absolute number of prisoners in the world, but also a prison population comparable in size to the prison population of Stalin's Gulag Archipelago.

Congress allows private companies run by hardline Republicans to count electronically without paper trails the votes in elections. It has been proved over and over that the electronic voting machines, with proprietary undisclosed codes, can rig any election, especially if there are no exit polls or the captured media can find a way to discredit the exit polls.

And now we have private health care destroyed by the greed for profit. There are many reports of health care corporations, but not private doctors, rationing and even denying health care to policy holders in order to maximize profits. There are reports of people with treatable forms of cancer who were not told by their corporate health care providers in order to avoid the cost of their treatment. These reports are in compliance with capitalist America's emphasis on profits uber alles, to hell with people, the environment, honor and integrity.

Wall Street is romanticized by libertarians and "free market economists." They believe, entirely on the basis of their ideology, that Wall Street finances venture capitalists who bring economic progress and higher living standards. Wall Street does no such thing, especially since financial deregulation turned Wall Street into a speculative hedge fund.

Wall Street is concerned with annual bonuses. It will do anything to get them.

Today the interests of American capitalists are as far removed from the interests of the population as the bureaucrats of state owned firms under socialism. Neither can fail, no matter how incompetent or inefficient, as they have the public purse as their backup.

The Wall Street investment banks, which created with the compliance of the regulatory authorities and the credit rating agencies, "toxic" instruments that were sold world wide, thus destroying the prospects of people in many countries, are devoid of integrity and honor. Their only god is greed. And they control the US government, which is too dependent on campaign contributions to restore regulation.

The lobbies of greed rule America. The White House, Congress, even the federal judiciary are impotent in the face of capitalist greed.

There is no government of the people, for the people, by the people, only the rule of private interests.

Goldman Sachs Wants You to Pay-by-the-Mile to Drive on U.S. Roadways

2010-01-23T11:56:00.000-08:00

http://americanfreepress.net/html/u_s__roadways__207.html

Mark Anderson
American Free Press
Fri, 22 Jan 2010 08:46 EST

According to an independent British newspaper editor, in the not-so-distant future, English drivers will be charged based upon the number of miles they drive, as is being done step-by-step in America.

On January 12, AFP interviewed Mike Robinson, the editor of the UK Column, a liberty-minded newspaper not unlike American Free Press.

"Road charging," as it is called in England, is widespread, he told AFP, as fiber optic cable has been laid along most English roads to help track vehicle travel by the mile so drivers can be charged.

"It has been on the European Union agenda for quite a long time," he added.

His comments came amid recent news of a radical plan to raise $200 billion by privatizing "the motorway network," as Brits call it. The plan was presented to the three main political parties by NM Rothschild, the influential investment bank, British news sources say.

The Rothschild bank, called "an architect of several privatizations," reportedly made its pitch in the weeks running up to the summer recess back on July 21, 2009. Bankers told leading politicians that the sale of the roads overseen by the [public] Highways Agency - all motorways and most "big trunk roads" - could help revive battered public finances. This is the same story Americans have been told.

True to form, toll-road companies and "infrastructure funds" would compete to operate and maintain stretches of the British toll network.

In one version of this scheme, the British government would pay for upkeep through a system of "shadow" tolls. A more radical and less politically acceptable option would be for private companies to charge motorists directly through privately owned toll booths or electronic card readers.

And how did U.S. politicians get the idea that privatizing roads was an acceptable future? Two words: Goldman Sachs, according to noted Texas columnist Ed Wallace.

"Yes, large Wall Street investment banks, led by Goldman, started advising states across the nation on how to raise fast money by diverting the most necessary publicly owned assets - roads - into private ownership," wrote Wallace. "You have to admit, it's brilliant, because it's a forced and guaranteed market: Americans can't get out of driving."

And as Daniel Schulman and James Ridgeway wrote in a scathing article, "The Highwaymen," in January 2007, "Many similar deals are now on the horizon, and MIG and Cintra are often part of them. So is Goldman Sachs, the huge Wall Street firm that has played a remarkable role advising states on how to structure privatization deals - even while positioning itself to invest in the toll road market."

Lobbyists prepare for battle with President Obama over bank 'fat cat' curbs

2010-01-23T11:55:00.000-08:00

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6999197.ece

James Bone
The Times
Sat, 23 Jan 2010 22:16 EST

Banking industry lobbyists are preparing to do battle, buoyed by a landmark US Supreme Court ruling striking down limits on corporations' political spending, against the ambitious and agressive plans laid on Thursday by President Obama.

Despite the pointed attacks made by the President on the "army of industry lobbyists from Wall Street", the Financial Services Roundtable, a body which represents 100 of the largest financial firms, said that Mr Obama's proposal would do little to protect consumers.

"The proposal will restrict lending, increase risk, decrease stability in the system, and limit our ability to help create jobs," said Steve Bartlett, chief executive of the roundtable.

In Washington the attack on bankers was seen as a "policy pivot" designed to accommodate voters' populist rage after the Democrats' loss of Edward Kennedy's Senate seat in Massachusetts. "I'll never stop fighting for you. I'll take my lumps, too," Mr Obama told an audience in Elyria, at the start of a day of campaign-style events aimed at reinvigorating the Democrats before the November mid-term elections.

The President has become increasingly strident about what he calls the "fat cats" in the big banks as the American public has reacted with revulsion to big bonuses being handed out in Wall Street. Mr Obama's political capital is dwindling, however, after the Democrats' loss on Tuesday of the 60-seat "super-majority" that enables them to overcome a Republican filibuster in the Senate.

Yesterday, the Senate was forced to postpone the confirmation of Ben Bernanke for a new term as Federal Reserve chairman after two more Democratic senators said that they would join a revolt against him.

The proposed banking restrictions are just the latest round of populist measures aimed at the financial sector in recent months, such as levying a tax on banks to recoup the cost of government bail-outs and setting up a consumer protection agency. The earlier ideas are already facing resistance in Congress, however.

Democrats in the House of Representatives are pushing for a fee on banks to pay back government bail-out money and establish a fund for future crises. Chris Van Hollen, a member of the Democratic leadership, predicted yesterday that the fee would pass the House of Representatives but he would only say it had a "decent chance" in the Senate. Republicans are also sceptical of creating a consumer watchdog, preferring to strengthen existing oversight agencies.

Now the Democrats no longer have a "super-majority", banking reform, like healthcare, will depend on attracting Republican votes in the Senate.

John McCain, the former Republican presidential candidate, is pushing to restore Depression-era restrictions on banks, known as Glass-Steagall, that were repealed in the late 1990s. Other Republican senators, however, voiced scepticism at Mr Obama's plans. "Let's solve problems," said Senator Jon Kyl of Arizona.

"Let's not be finding a bogeyman so that we can turn public attention away from what they're doing wrong in the Administration," he added.

Q&A:

What is Obama's point exactly? He wants to ban banks from taking the huge risks that led them to be bailed out by taxpayers and brought on the credit crunch.

Will Britain follow? George Osborne, the Shadow Chancellor, rushed to support President Obama, but said that Britain would not follow unless it was a worldwide initiative. Labour also indicated that it was in broad support. Legal and practical complexities mean that Mr Obama's words may fall on deaf ears. The best chance of success may be if banks do it of their own accord.

Will the crackdown change the way UK bank accounts operate? Since all the government initiatives are designed to force banks to behave more cautiously, their chances to make profits could be reduced and if profits from commercial banking fall, customers may find that they get less or have to pay more for personal banking.

Does it also mean that small businesses may find it even harder to get loans? Yes.
Individual bankers by and large kept quiet, preferring to weigh up the best response in private. As they did so, Mr Obama flew to the struggling rust-belt state of Ohio in hope that the attack would re-energise his popularity in middle America.

Will bankers' jobs be lost? If banks are subjected to new curbs fewer bankers will be required.

Won't some of these big institutions we now call banks just reinvent themsleves and carry on? Yes, but they may well find life much more difficult.

But London might benefit from all this, if American clamps down and we don't, right? There is a huge opporutnity for the City, but only if our politicians fail to introduce the similar reforms that they say they want. Financial centres in other parts of Europe, or farther afield in Asia or in offshiore tax havens, may be rubbing their hands.

Does this spell the end of banker's bonuses? That is one of the clear aims, but bankers are a crafty breed: don't bet against them winning in the end.

Will it stop future crises? Probably not. If financial institutions of the future are really determined to take the risks that landed them in so much trouble, they may well find a way. And when the credit crunch is a distant memory, they may find justifications too. But if future banking crises are to be avoided, some extra controls may be inevitable.

Bernanke’s Bid for a Second Term at the Fed Hits Resistance

2010-01-23T11:21:00.000-08:00

http://www.nytimes.com/2010/01/23/business/economy/23fed.html?pagewanted=print

January 23, 2010
Bernanke’s Bid for a Second Term at the Fed Hits Resistance
By SEWELL CHAN and DAVID M. HERSZENHORN

The Obama administration struggled on Friday to secure confirmation of Ben S. Bernanke to a second term as chairman of the Federal Reserve, underscoring the political upheaval as both parties tried to find their footing amid a powerful wave of populism.

Two Democratic senators who are up for re-election this year announced that they would oppose Mr. Bernanke, whose four-year term as head of the central bank expires at the end of this month. Their decisions reflected a surge of opposition among some Democrats and Republicans to Mr. Bernanke, a primary architect of the bailout of the financial system and a contributor to policies that critics contend put the economy at risk in the first place.

With no vote scheduled and Capitol Hill abuzz with the possibility that more senators would use the nomination to show voters they understood the anger about bailouts and economic hardship, the uncertainty about Mr. Bernanke’s fate spread to Wall Street.

It contributed to another day of losses for investors at the end of a three-day slide that drove the markets down almost 5 percent. The Dow ended the week at its lowest close since early November.

By the end of the day, the White House had extracted a statement of support for Mr. Bernanke from the Senate majority leader, Harry Reid of Nevada, who had been noncommittal. Mr. Reid’s statement, issued after the markets closed, was intended to signal that Democrats, backed by some Republicans, could come up with the 60 votes necessary to break a deadlock and reconfirm Mr. Bernanke.

But even then Mr. Reid’s statement was remarkably unenthusiastic. After meeting with Mr. Bernanke on Thursday, Mr. Reid warned: “The American people expect our economic leaders to keep Wall Street honest and level the playing field for middle-class families.”

And in his statement Friday, Mr. Reid said he had decided to support Mr. Bernanke with trepidation and only after he received a commitment that the Fed chairman would take additional steps to increase the flow of credit to middle-class Americans.

While some Republicans were certain to oppose Mr. Bernanke, the minority leadership had its own strategic calculations to make.

Rejecting Mr. Bernanke, a Republican economist who was named chairman by President George W. Bush in 2005 and took over in 2006, could lead Mr. Obama to appoint someone from the ranks of Democratic economists that Republican lawmakers find less appealing. And if markets swooned, Republicans would share in the blame.

But even if the nomination is approved, the spasm of anxiety surrounding it will have highlighted how members of both parties are reassessing their stands on many issues as they try to understand the strain of anger toward the government, Wall Street and other institutions.

In the days since the Democrats lost a crucial Senate seat in Massachusetts, Mr. Obama has struck a tougher tone toward big banks. In the process he signaled a shift away from less aggressive regulatory policies backed by another architect of the bailout, Timothy F. Geithner, the Treasury secretary. On Friday in Ohio, Mr. Obama took a combative approach on health care reform and banking regulation.

But Mr. Obama cannot afford a failed nomination — the Senate has never before rejected a president’s nominee for Fed chairman — and he has publicly and privately backed Mr. Bernanke and Mr. Geithner for their roles in stabilizing the financial system and averting what could have been a wholesale collapse.

Opposition to Mr. Bernanke has emerged from both the left and the right, as anger has mounted over the Fed’s extraordinary interventions in the market in 2008 — which have been lumped together with the huge bailouts of big financial institutions — and over its regulatory failings before the crisis. Mr. Bernanke has also been criticized for backing an easy money policy earlier in the decade that critics say fueled the housing bubble.

“The anger at the Treasury has been spilling over to the Fed,” said Frederic S. Mishkin, a former member of the Fed’s board of governors and a close friend of Mr. Bernanke.

“My view is Chairman Bernanke helped save the world from depression,” said Mr. Mishkin, an economist at Columbia University. “Whether you agree with every policy he’s pursued or some of the ways the bailouts were done, the outcome here, given the severity of the shock, is a good one. But that’s hard to explain to the American public when we’re sitting with 10 percent unemployment.”

The two Democratic senators to come out against Mr. Bernanke on Friday, Barbara Boxer of California and Russell D. Feingold of Wisconsin, called for a chairman more attuned to the suffering of ordinary Americans.

“It is time for Main Street to have a champion at the Fed,” Ms. Boxer said. “Our next Federal Reserve chairman must represent a clean break from the failed policies of the past.”

Mr. Feingold was unsparing in his criticism: “Under the watch of Ben Bernanke, the Federal Reserve permitted grossly irresponsible financial activities that led to the worst financial crisis since the Great Depression.”

By day’s end, other Democratic senators had rallied around Mr. Bernanke. Senator Christopher J. Dodd of Connecticut, the chairman of the Banking Committee, warned that a no vote would “send the worst signal to the markets right now in the country and send us in a tailspin.”

Senator Mary L. Landrieu of Louisiana announced qualified support, saying that “failing to reappoint Mr. Bernanke would only add turmoil to markets that are just beginning to recover.”

The White House chief of staff, Rahm Emanuel, and Secretary Geithner were both making calls to senators on Mr. Bernanke’s behalf, administration officials said.

At least 11 senators have said they would oppose Mr. Bernanke, including four Democrats, Ms. Boxer, Mr. Feingold, Byron L. Dorgan of North Dakota and Jeff Merkley of Oregon; one independent, Bernie Sanders of Vermont; and six Republicans.

“Especially since the election in Massachusetts, Democrats are waking up to the fact that Americans are profoundly disgusted with the behavior on Wall Street that led to the disaster we’re currently in,” Mr. Sanders said. “In the last week the president has decidedly changed his tone on Wall Street — in my view, quite appropriately. He would be well served to have an ally at the Fed who shares those concerns.”

Senate Democratic leaders had contemplated a vote this week on the nomination, but were forced to hold off after encountering opposition at their caucus’s weekly luncheon on Wednesday. The leaders asked for a show of hands and, though aides would not provide a precise count, Mr. Reid was said to be surprised at the number.

And in a sign of such uncertainty, Mr. Reid asked the minority leader, Mitch McConnell of Kentucky, to count the votes on the Republican side. Mr. McConnell has not said how he will vote, but some influential Republican senators, including Judd Gregg of New Hampshire and Lamar Alexander of Tennessee, have said they will back Mr. Bernanke.

If Mr. Bernanke’s term as chairman expires, he would still remain a member of the board of governors, where he holds a separate 14-year appointment that does not expire until 2020. It is also possible he could continue on as chairman pro tempore. The Federal Reserve Act states that the vice chairman — Donald L. Kohn now — acts as chairman in the chairman’s absence, but how an absence is defined is not clear.

Five Banks Fail; Year's Total at 9

2010-01-23T06:26:00.000-08:00

http://online.wsj.com/article/SB10001424052748703822404575019681776963858.html?mod=googlenews_wsj

JANUARY 23, 2010
Five Banks Fail; Year's Total at 9
BY DAN FITZPATRICK

Regulators seized five banks in Florida, Missouri, New Mexico, Oregon and Washington, lifting the total number of failures this year to nine as financial institutions struggle with loan defaults and a weak economy.

Two of the five institutions had assets of more than $1 billion. The Florida bank, in Miami, was sold to an investment group that includes former North Fork Bancorp Chief Financial Officer Dan Healy. The deposits and assets of the New Mexico bank went to Texas billionaire Andrew Beal.

The Federal Deposit Insurance Corp. estimated the Friday closings will cost the agency's cash-strapped deposit-insurance fund a total ...

Two US Banks Fail; Year's Total at 6

2010-01-23T00:57:00.001-08:00

http://online.wsj.com/article/SB10001424052748703822404575019681776963858.html?mod=googlenews_wsj

Dan Fitzpatrick
The Wall Street Journal
Fri, 22 Jan 2010 20:08 EST
Regulators seized two banks Friday, in Missouri and Florida, lifting the total number of failures this year to six.

The Florida bank, based in Miami, was sold to an investment group that received a so-called shelf charter last year to acquire failed financial institutions. The Federal Deposit Insurance Corp. estimated the closings will cost the agency's cash-strapped deposit-insurance fund a total of $93.1 million.

In the first seizure Friday, the FDIC sold Premier American Bank's four branches, $326 million in deposits and some of its assets to a subsidiary of Naples, Fla.-based Bond Street Holdings LLC, the group granted a preliminary shelf charter in October 2009 to establish a new national bank. Regulators have been encouraging investors to apply for such charters as a way of expanding the pool of potential buyers, and this is the first time a group was successful in using the tool to pick up a failed institution, according to the Office of the Comptroller of the Currency.

Bond Street Holdings was allowed to keep Premier American's name, and it will reopen Monday as Premier American Bank NA.

Bond Street Holdings has about 70 mutual funds, hedge funds, private-equity firms and individuals as investors, according to Bond Street attorney David Katz. One is former North Fork Bancorp finance chief Dan Healy, who will be chief executive and chairman of the new Premier American. Another investor is Stuart Oran, a senior managing director of advisory firm FTI Consulting and former executive with United Airlines.

The FDIC and the new owner also agreed to share losses on $300 million of the failed bank's assets.

In the second failure Friday, state regulators closed Leeton, Mo.-based Bank of Leeton and the FDIC sold the sole branch and all $20.4 million in deposits to Salina, Kan.-based Sunflower Bank. The FDIC will retain most of the assets.

Since 2008, regulators have closed 170 banks, and the expectation is that failures will continue to accelerate in 2010 as financial institutions struggle with residential and commercial loan defaults and heightened regulatory scrutiny. FDIC Chairman Sheila Bair has predicted that failures will "peak" this year and then "subside."

Hightower: Bernanke Wants Even More God-Like Powers for the Federal Reserve

2010-01-22T15:20:00.001-08:00

By Jim Hightower, AlterNet
Posted on January 22, 2010, Printed on January 22, 2010
http://www.alternet.org/story/145330/

Editor's Note: It's now come out that Ben Bernanke's future at the helm of the Federal Reserve is in question. "Bernanke's confirmation vote by the Senate for a second four-year term has been delayed, pending receipt by the committee of documents concerning the Fed's role in the massive bailouts of the U.S. financial industry in 2008 during the economic meltdown." The Huffington Post reported that on Wednesday, Sen. Bernie Sanders (I-Vt.), a Bernanke opponent, said that opposition was growing against his re-confirmation. And on Thursday Jim Manley, senior communications adviser to Senate Majority Leader Harry Reid (D-Nev.), said that the vote had not been firmly locked in and won't take place this week. A spokeswoman for the Federal Reserve referred questions to the Senate."

***
Here's a story that reads like the script of an old B-grade monster movie -- and it would be comic, were it not so serious. The monster is named "The Fed," a hydra-headed creature with enormous and destructive power, which it exercises from within the misty confines of a marble cavern that is unapproachable by commoners.

In real life, the Fed is the Federal Reserve -- a private, for-profit bank that is run by and mostly for other big bankers. But it's also its own, secretive branch of our national government. The Fed creates its own money (check your bills -- they're called Federal Reserve notes), it sets our interest rates, it regulates Wall Street and (as we've recently learned the hard way) it has sweeping power to bail out Wall Street.

The Fed operates largely beyond the purview of Congress or even the White House, and both the media and the public are essentially shut out from scrutinizing its financial machinations. The banking gods who dwell within the Fed's temple are said to have knowledge, even wisdom, that the rest of us cannot fathom, so the Powers That Be tell us that these deities must be left alone to make their decisions and work their wonders.

But, wait -- aren't these the same omniscient gods, including Alan Greenspan and Ben Bernanke, that failed to see -- much less forestall -- the looming financial disaster created by Wall Street gamblers who used people's homes as their personal gambling chips during the past decade? Yes, indeed, those are the gods -- the very ones who were supposed to be monitoring and regulating the gamblers to keep them from crashing our financial system and wrecking America's real economy.

Where were these all-knowing ones when we needed them? The blissful Bernanke, who heads the Fed, now claims that the crash of '08 happened because he and other gods did not have enough regulatory clout to stop it.

"Give us more power," is Bernanke's current demand to Congress!

But, wait -- as New York Times analyst David Leonhardt recently wrote -- Fed officials failed to use the substantial power they already had. Why? Because they're too cozy with the quick-fingered Wall Street gamblers they "regulate," so they simply refused to see (or believe) clear signs that the whole system would topple as housing prices headed over the cliff.

While Bernanke is a very smart guy, he was soaked in the stupid conventional wisdom of the day, which was that housing prices only go up. In 2005, he dismissed non-conformist critics of the Fed's inaction by flatly declaring, "We've never had a decline in house prices on a nationwide basis." And, two years later, as prices were plummeting and modest-income families were defaulting on their home payments, he calmly assured us that the gods "do not expect significant spillovers from the subprime market to the rest of the economy."

Our financial rulers were so intoxicated with the fumes of their own omnipotence that they failed abjectly as regulators, as public servants and, most certainly, as gods. The fact that they didn't see what was coming has caused immeasurable pain to millions of families. As Leonhardt asks, "Why should Congress, or anyone else, have faith that future Fed officials will recognize the next bubble?"

Yet, without apologizing for (or even acknowledging) their failure, these denizens of the temple now insist that Congress entrust them with even more authority over our financial well-being.

Many lawmakers, however - led by such knowledgeable and politically diverse Fed critics as Rep. Ron Paul (a libertarian) and Sen. Bernie Sanders (a socialist) - are daring to challenge the gods, proposing steps to rein in their arrogance, aloofness and authority. For more information on this challenge, contact the watchdog group OMB Watch at www.ombwatch.org/fiscal_stewardship.

Jim Hightower is a national radio commentator, writer, public speaker, and author of the new book, "Swim Against the Current: Even a Dead Fish Can Go With the Flow." (Wiley, March 2008) He publishes the monthly "Hightower Lowdown," co-edited by Phillip Frazer.

Swedish Bank Fee Sets Example for America

2010-01-22T14:50:00.000-08:00

http://www.nytimes.com/2010/01/22/business/global/22levy.html

January 22, 2010
Swedish Bank Fee Sets Example for America
By MATTHEW SALTMARSH

When it comes to rescuing banks, the Swedes are earning a reputation as trendsetters. First they set a standard for recovering from disaster; now they want to export their idea for how to pay for it.

The country went through its own crippling banking crisis during the early 1990s, after the bursting of a domestic credit bubble. It rebounded relatively smoothly through an aggressive bailout policy built around nationalization and carving the troubled assets of banks off into a so-called bad bank.

That blueprint was followed to varying degrees over the last year or so in the United States, Japan, Britain, the Netherlands and other countries.

Now, others are looking at Sweden’s latest idea to protect its lenders, enacted at the end of 2009 — a “stability fee,” or direct tax on banks so that they pay for their own bailouts.

The Swedish idea appears to have resonated in Washington. United States Treasury officials phoned their Swedish counterparts in December, requesting details of the fee. Last week, the Obama administration announced plans for a financial crisis responsibility fee, aimed at its biggest banks and intended to complete the recovery of the cost to taxpayers of the American bank bailout program.

“We can so far be proud,” the Swedish minister for financial markets, Mats Odell, said in a telephone interview from Stockholm. “Our support so far is in profit; we avoided a crisis like the 1930s and we have a stable system to ensure that taxpayers will be protected in future crises.”

The American proposal, which is expected to face a fierce fight in Congress, works along similar lines as the Swedish program, but has a different goal. The plan aims to recover for the taxpayer the billions in government funds spent bailing out giant lenders like Citigroup and Bank of America.

It would remain in place for at least 10 years and would be applied to all financial institutions with more than $50 billion in consolidated assets — at 0.15 percent of covered liabilities.

Swedish officials say their program aims to ensure that when another banking crisis occurs, as it surely will, the tools are in place to manage and pay for it.

According to Swedish officials, the stability fee has been welcomed by the banks that dominate the financial system. Smaller credit and financing companies complained bitterly, though, arguing that they would never be helped by the government in the event of a failure.

In the United States, the reverse is happening. The Securities Industry and Financial Markets Association, representing Wall Street and big banks, is considering a lawsuit against the administration on the grounds that “a tax so narrowly focused would penalize a specific group.” Sweden did not suffer as much as some other countries during this financial crisis. The government, however, did guarantee that the major Swedish banks would not fail, and participated in a rights issue last year for Nordea Bank, in which it holds a 20 percent stake. It also took over Carnegie, a small investment bank.

Two Swedish banks — SEB and Swedbank — ran into trouble from their aggressive expansion in the Baltic states of Estonia, Lithuania and Latvia. While the lenders were not bailed out, they benefited from state guarantees, avoiding damaging runs.

But Stockholm went further, introducing a permanent stability fee on banks and other credit institutions that some now see as a model for other countries.

The levies are allocated to a stability fund, managed by the National Debt Office. The government plans to keep the tax until it hits a total of 2.5 percent of gross domestic product in 15 years. The Swedes estimate that to be the amount that a full-blown banking crisis would normally cost the economy.

The fee will be due annually, starting at 0.018 percent of each institution’s liabilities, excluding equity capital and some junior debt securities, based on audited balance sheets.

The first payments have not been made because the 2009 reports of the banks have not been completed. But the government has already started the fund with 15 billion kronor ($2.1 billion). Sweden has also parked its shares in Nordea, which have increased in value, in the fund; when conditions are right, Mr. Odell said, the government plans to sell its stake. The fund now stands at about 30 billion kronor, or about 1 percent of Swedish gross domestic product. The bank levy will rise to 0.036 percent of liabilities in 2011, when the government is planning to introduce a weighted charge as well. Companies with riskier balance sheets would pay more.

The money will initially be used by the agency in its own operations — which potentially means the government could use it to pay down its debt. When the money is needed for bank support, the agency would raise money by issuing new debt securities.

Sweden has learned from some of the mistakes it made during the crisis of the 1990s. At that time, it introduced a levy on transactions, but trading activity then migrated to London, where taxes were more favorable, the Swedish finance minister, Anders Borg, said Tuesday at a meeting in Brussels.

Having established and tested the new policies, Mr. Borg urged his European partners, in a letter released Tuesday, to follow his country’s lead and introduce a similar program.

Finance ministers from the Group of 20 world economic powers are scheduled to meet in February and are expected to discuss the issue. At the request of the G-20, the International Monetary Fund is working on proposals for a crisis levy and it plans to deliver a report to G-20 ministers in April. Leaders will examine the issue in June.

Why Obama is Now (finally) Getting Tough on Wall Street

2010-01-22T14:38:00.001-08:00

http://robertreich.org/post/346072544/why-obama-is-now-finally-getting-tough-on-wall-street

Why Obama is Now (finally) Getting Tough on Wall Street
THURSDAY, JANUARY 21, 2010

President Obama is now, finally, getting tough on Wall Street. Today he’s giving his support to two measures critically important for making sure the Street doesn’t relapse into another financial crisis: (1) separating the functions of investment banking from commercial banking (basically, resurrecting the Depression-era Glass-Steagall Act) so investment banks can’t gamble with insured commerial deposits, and (2) giving regulatory authorities power to limit the size of big banks so they don’t become “too big to fail,” as antitrust laws do with every other capitalist entity. A few days ago the White House demanded that the biggest banks repay the $120 billion or so still owed the government from the bailout.

All good, all correct, all important. The President deserves at least two cheers. Why not three? It took him over a year to finally get here. The House has already completed its work on financial reform and may be reluctant to start over. The Senate is in disarray since Chris Dodd, chair of the Banking Committee, announced recently he wouldn’t seek reelection, and is poised to compromise with Wall Street on a number of big issues. Neither chamber has shown any interest whatsoever in resurrecting Glass-Steagall or limiting the size and risk of big banks. In other words, much of the game is over.

It’s possible, of course, that Congress could go along with Obama’s new proposals. A populist backlash against the big banks is growing among Americans who can’t understand why Wall Street is back to its old ways even though most Americans are worried about losing their jobs and homes as a result of Wall Street’s massive implosion in 2008. And they’ve never been able to understand why taxpayers bailed out Wall Street while Main Street still languishes.

A cynic might conclude that Obama’s born-again populism is for the cameras. Scott Brown’s upset victory in Massachusetts revealed the strength of I’m-mad-as-hell populism in the electorate right now. Add in the $150 billion of bonuses the Street is about to bestow on itself and the outrage meter could blow. With sky-high unemployment and surly voters, Democrats have to show they’re on the side of the people, not the powerful, as Al Gore put it in the last days of the 2000 election (too late to help himself).

For almost a year now, Democratic pollsters have been pointing out how much the public hates the bank bailout and despises Wall Street. But there was no reason for Democratic leaders in Congress or the White House to pay much attention. After all, it was a Republican president and a Republican Congress that came up with the bank bailout plan to begin with. Some stalwart Republicans had grumbled about it, of course, but Republicans have always been on the side of Wall Street and big business and weren’t likely to call for strong measures to prevent the Street from getting into trouble again.

Larry Summers and Tim Geithner scuttled Paul Volcker’s plan to separate the banks’ commercial and investment functions, and didn’t want to limit the size of banks or the risks they could take on. Summers and Geithner have wanted to get the banks back to profitability as soon as possible. And Dems in Congress have had no stomach to take on Wall Street, a major source of campaign funding.

But suddenly the winds are blowing in a different direction over the Potomac. The 2010 midterms are getting closer, and the Dems are scared. Their polls are plummeting. The upsurge in mad-as-hell populism requires that Democrats become indignant on behalf of Americans, and indignation is meaningless without a target. They can’t target big government because Republicans do that one better, especially when they’re out of power. So what’s the alternative? Wall Street.

Perhaps I’m being too cynical. Maybe the Obama and congressional Democrats are now ready to give up Wall Street trickle-down economics and focus on Main Street trickle-up. “There are two ideas of government,” said William Jennings Bryan at the Democratic National Convention in Chicago in 1896. “There are those who believe that you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.” He couldn’t have said it better.

Max Keiser: Icelandic Parliament Member Leads Revolt Against Banksters

2010-01-21T14:25:00.000-08:00

http://www.blacklistednews.com/news-7082-0-13-13--.html

Max Keiser: Icelandic Parliament Member Leads Revolt Against Banksters
01-18-2010

In this interview on RT by Max Keiser with Bergitta Jondottir, leader of The Movement in the Icelandic Parliament, who is taking on the international bankers and describes the events that are taking place. If the Western Nations are going to survive from the bankster/fraudsters, we must follow the example of these brave people.

Obama Adopts Volcker's Solution: If Banks Want Govt. Guarantees, They Have to Close Their Casino Operations

2010-01-21T13:34:00.000-08:00

http://www.alternet.org/story/145321/obama_adopts_volcker%27s_solution%3A_if_banks_want_govt._guarantees%2C_they_have_to_close_their_casino_operations

By Zach Carter, AlterNet
Posted on January 21, 2010, Printed on January 21, 2010
http://www.alternet.org/story/145321/

The news that President Barack Obama is finally listening to Paul Volcker is welcome, but the specifics of Obama's big bank crackdown are not as positive as initial reports had indicated.

For more than a year now, Volcker has been urging policymakers to deliver strong regulatory medicine to revive the weak U.S. financial system. But Obama and other top advisors like Larry Summers and Timothy Geithner have resisted the former Federal Reserve Chairman's overtures, opting instead for a set of small-bore, technocratic tweaks to a system that is fundamentally broken (there's one major exception to this pattern -- Obama's proposal to create a Consumer Financial Protection Agency is a dramatic and critical step for salvaging the American economy, and Obama has advocated for it over Geithner's objections). Volcker has repeatedly suggested that banks that are too-big-to-fail are simply too-big-to-exist, and has consistently and correctly urged that banks be banned from participating in risky, high-flying securities trading. Today, Obama acknowledged that these were good ideas.

Commercial banks are the backbone of the U.S. financial system. They accept deposits from consumers -- your paychecks -- and they make loans that keep businesses humming. Commercial banking is the way people and companies pay each other for goods and services -- without commercial banks, there is literally no economy, all hell breaks loose. To help protect against this economic Armageddon, the U.S. government guarantees bank deposits to ensure that our paychecks don't simply disappear if a bank fails. But since the repeal of the Glass-Steagall Act in 1999, banks have increasingly become involved in risky gambling activities in the capital markets, and they've made their bets with the deposits that the government guarantees.

That's crazy. So Volcker has a simple solution: if you want to accept government-guaranteed deposits, you can't attach a casino to your bank. Obama endorsed this plan today, and it is truly an extraordinary step forward for economic policy. It would require banks to either end these risky activities, or sell-off the portions of their business that engage in it, forcing too-big-to-fail banks to downsize their operations.

But even if you ban this so-called proprietary trading, we would still have banks that are too-big-to-fail. There is a well-established regulatory plan for dealing with failing commercial banks: let them fail and save the deposits. But when Wachovia went down in the fall of 2008, regulators didn't follow the plan. Instead, they intervened to orchestrate a merger with Wells Fargo. The worthless, failed Wachovia bank was acquired by Wells Fargo for $7.00 a share, a deal that amounted to a federal subsidy for Wachovia's shareholders. Wachovia was simply too big to go down without ravaging the economy. So even if we ban proprietary trading at commercial banks, many U.S. banks would remain too-big-to-fail.

And Wachovia was a relatively easy bailout -- Citigroup and Bank of America needed much bigger, repeated bailouts. If the problem is over-sized banks, breaking them up is the only way to solve it. And here, Obama seems to have dropped the ball. While Obama would impose a hard cap on bank size, he implied in his speech that this cap would not prohibit the multi-trillion-dollar behemoths that currently exist. From his address today, emphasis mine:

"As part of our efforts to protect against future crises, I'm also proposing that we prevent the further consolidation of our financial system," Obama said.

Nothing to see here, folks, just a handful of megabanks that the government handed out trillions of dollars to save (Yes, trillions -- the bailout operations were much broader than the $700 billion Troubled Asset Relief Program). That timidity was emphasized on a conference call that senior administration officials held with reporters.

"The focus really is on making sure that in the future that firms don't grow so concentrated that they would exceed this kind of cap … It's designed to constrain future growth so that we won't have the extent of concentration you see in many other advanced countries in the world that resulted in way more devastating damage to those countries during the financial crisis even than occurred here in the United States," a senior administration official said.

So Obama absolutely must make clear that today's banking giants are too big, and give us strong legislation to break them up. But despite this shortcoming, these new proposals indicate that Obama is taking Volcker seriously. That's a welcome development, since Obama's other top advisors--Geithner and Summers--are creatures of Wall Street who helped enable the current economic calamity. And Obama's new path indicates that he understands - finally - what all the fuss is about. Americans are sick and tired of watching their economy be hijacked by banking behemoths and seeing their democracy undermined by big bank lobbyists. Now Obama needs to show us that he has the courage to push through meaningful reform.

Zach Carter writes a weekly blog on the economy for The Media Consortium. His work has appeared in The American Prospect, The Atlanta Journal-Constitution and on CNBC.

Fed makes ‘a killing’ on AIG contracts

2010-01-21T13:08:00.000-08:00

http://www.ft.com/cms/s/0/a70659d4-0543-11df-a85e-00144feabdc0.html

Fed makes ‘a killing’ on AIG contracts
By Henny Sender in New York
Published: January 20 2010 00:00

The Federal Reserve is sitting on billions of dollars in paper profits from its controversial effort to unwind credit insurance contracts that AIG provided to banks such as Goldman Sachs, people familiar with the matter said.

The Fed rescue has generated criticism because the banks received 100 cents on the dollar for credit insurance they bought from AIG on collateralised debt obligations – financial instruments that promise the buyer cash flows from pools of bonds or loans. This had led to claims that AIG’s rescue was a “backdoor bail-out” of big banks.

However, the central bank is in a position to reap profits from this part of the rescue, which involved the purchase of the underlying CDOs by a New York Fed-financed vehicle, called Maiden Lane III, so that the insurance contracts written on them could be terminated.

At the time of their purchase, the CDOs had a face value of $62.1bn and a market value of $29.6bn. Now, the estimated market value of the CDOs is at least $45bn (£27.5bn), according to several people with direct knowledge of the portfolio.

“With the rally in the credit markets and tightening spreads, the Fed has made a killing – on paper,” said one person familiar with the portfolio.

The people familiar with the portfolio said that it would be difficult to sell all the CDOs because they are generally illiquid. A rapid sale of CDOs could also depress their prices.

At the time of the Fed intervention, the value of the CDOs insured by AIG was falling dramatically and AIG was facing a credit downgrade. AIG was being forced to post more collateral with the banks to which it sold credit insurance and the Fed feared that these demands would wipe out the insurer.

Following the rescue, the value of the CDOs in Maiden Lane III continued to fall, sinking to $20.7bn by March 31 2009. The portfolio’s value rose to $22.4bn by the end of September, the last date for which official statistics are available.

Maiden Lane III was funded with a $24.3bn loan from the New York Fed and $5bn in equity from AIG. Because the CDOs have continued to throw off cash, the balance on the Fed loan is now about $17bn, people familiar with the matter said.

If the CDOs in Maiden Lane III were sold, the proceeds would pay off the Fed loan first, followed by the AIG investment. The Fed would receive 67 per cent of any additional profits, and AIG 33 per cent.

The improvement in the Maiden Lane III portfolio comes as Fed officials face continuing controversy over the circumstances of the bail-out.

US Treasury secretary Tim Geithner, who was New York Fed president at the time of the AIG rescue, is set to testify at a hearing on the matter by The House Oversight and Government Reform Committee on January 27.

AIG declined to comment.

Will The Banks Win Again? Bailout Watchdog Rallies Support For Consumer Protection Agency

2010-01-20T15:14:00.000-08:00

http://www.huffingtonpost.com/2010/01/19/will-the-banks-win-again_n_427652.html

Shahien Nasiripour
shahien@huffingtonpost.com
Will The Banks Win Again? Bailout Watchdog Rallies Support For Consumer Protection Agency
01-19-10

The battle in the Senate over a proposed consumer financial protection agency is the final show-down between banks and American families, bailout watchdog Elizabeth Warren wrote to supporters Monday night.

The outcome "will show whether we are going to let the industry continue to write the rules -- to keep the cops off the beat -- or whether the financial crisis actually changed something."

Senate Banking Committee Chairman Christopher Dodd (D-Conn.) is said to be considering dropping the proposed independent agency from the Senate's financial reform bill.

But Warren isn't giving up. "We have all worked hard to make the CFPA into a reality, and the next few weeks will determine whether our hard work will make a difference for families or whether families will lose once again," the Harvard Law professor and advocate for the middle class wrote. "The next few weeks will determine whether families will have to play by rules written by the banks and for the banks -- rules that let the industry get away with anything. In my view, we cannot let families lose again."

The new agency would be equipped with the power to write rules governing basic consumer credit products like home mortgages and credit cards, and would have the authority to regulate big banks and monitor their compliance.

Federal bank regulators, who focus on the safety and soundness of the country's banking system, are mostly concerned with bank profitability, consumer advocates and law professors say. Consumer protection has not been a priority.

But there's been a growing recognition that the lack of adequate protection for consumers helped cause the financial meltdown of 2008.

President Obama and his advisers have repeatedly called for such an agency, arguing that it's the best way to protect consumers from the big banks. The House passed a financial reform bill modeled on his proposal in December.

Story continues below
Republicans have vowed to defeat any bill creating such an agency, arguing that its proposed powers are best left to the bank regulators. Federal banking regulators also oppose it, arguing that it's hard to separate bank regulation from consumer protection.

Blocking the CFPA has been atop the banking industry's legislative agenda since last summer. The industry has spent millions lobbying and campaigning against such an agency, which they argue would lead to increased costs and less credit for consumers.

The power of the bank lobby on Capitol Hill cannot be understated. As Sen. Dick Durbin (D-Ill.) put it in April, as a bankruptcy bill he championed went down in flames, "they frankly own the place."

According to multiple news reports, Dodd is proposing to ditch the CFPA as an independent agency. The goal, he says, is to secure Republican support for the overall legislation. Rather, he would ask Republicans to support a consumer-protection division within another federal agency, such as the Treasury Department or a regulatory agency.

But it's not lost on reformers that federal regulators and those they regulate appear to be in lock-step with one another. Just last week, the head of the country's second-biggest bank, Jamie Dimon of JPMorgan Chase, praised federal banking regulators.

"I have been completely clear throughout that regulators should not be blamed," Dimon said of the bank regulators and their perceived role in the near-meltdown of the nation's financial system. The regulators, after all, allowed banks like Dimon's to do whatever they wanted, critics allege, like giving mortgages to unqualified borrowers and then securitizing them for sale to unsuspecting investors, spreading risk throughout the system.

The lack of effective regulation was one of the main drivers behind the collapse. Now the question is will the new regulations be any better.

Warren writes in her letter: "The fate of the Consumer Financial Protection Agency will be the best way to follow the story moving forward because consumer products were the most abusive and because the CFPA has real muscle to stop those abuses," she wrote. "The CFPA would hire new cops and change the way big banks do business.

READ the entire letter:

Friends,

The story of the financial crisis has a thousand twists and turns, but the basic narrative is easy to follow. The financial industry wrote rules that allowed it to act recklessly. The industry captured agencies that were supposed to regulate it, taking cops off the beat and funneling enormous resources into the political process to make sure there wouldn't be any new cops.

Then, with no laws to hold them back, the banks made hundreds of billions of dollars on the sales of deceptive products.

That went on for years, and the industry's tricks-and-traps pricing got more and more out of control. Eventually, the sale and re-sale of deceptive mortgages and other dangerous products made trillions of dollars for Wall Street while bringing down the American economy. When the industry's recklessness brought the biggest banks to the brink of collapse, Wall Street turned to the taxpayers for bailouts and guarantees, which put it right back into big profits and big bonuses. The industry got whatever it wanted.

Now we are coming to the final chapter of this story.

The final chapter will show whether we are going to let the industry continue to write the rules -- to keep the cops off the beat -- or whether the financial crisis actually changed something.

The fate of the Consumer Financial Protection Agency will be the best way to follow the story moving forward because consumer products were the most abusive and because the CFPA has real muscle to stop those abuses. The CFPA would hire new cops and change the way big banks do business.

We have all worked hard to make the CFPA into a reality, and the next few weeks will determine whether our hard work will make a difference for families or whether families will lose once again. The next few weeks will determine whether families will have to play by rules written by the banks and for the banks -- rules that let the industry get away with anything. In my view, we cannot let families lose again.

Like you, I read last week that the consumer agency is dead. I also read the same thing last spring, last summer, last fall, and last month. And I've been warned about the power of the banks since I first developed this idea in 2007. We always knew this was a David v. Goliath fight, but I don't believe that Washington can or will let Wall Street act like nothing has changed.

I am writing to ask you to make an extra effort these next few weeks to organize calls and emails into the Senate Banking Committee about CFPA, to organize op-ed and letter to the editor campaigns across the country, and to create visible, public support for CFPA. If everyone on this list called key Senators on the Senate Banking Committee, that would send a loud message -- and if your members will do the same, the message will get louder.

This is not the last important moment in the fight for the CFPA, but it is a critical one. You can count on me to do my part. Please help.

Elizabeth

Big Mass Loss: Voters see Obama siding with banks

2010-01-20T14:44:00.001-08:00

http://www.opednews.com/articles/Big-Mass-Loss-Voters-see-by-Michael-Collins-100119-997.html

January 19, 2010
Big Mass Loss: Voters see Obama siding with banks
By Michael Collins

The article excerpted below is the first and may end up being the best analysis of the Massachusetts disaster, the loss of the late Senator Edward Kennedy's seat in the United States Senate. The "all knowing" pundits have already tagged this as some sort of revolt against President Obama's health care legislation or a sea change in United States politics. But there are a few facts that point to the likely cause of the defeat. Financial commentator Numerian laid it out out very clearly at the start of his analysis:

"An interesting observation was made today by the pollster for Martha Coakley, the hapless Democratic candidate for the Massachusetts senate seat held almost forever by Ted Kennedy. It appears polls are showing that the voters, especially independents who would normally vote Democratic in a liberal blue state like Massachusetts, have instead run to support the Republican candidate as the agent of change. Wasn't that supposed to be Barack Obama's signature tune?

"Massachusetts voters have given up on President Obama as an agent for anything but the status quo, and this is most evident in his willingness to dole out trillions of dollars in direct and indirect support to the banks. The Massachusetts polls show this issue to be foremost on the minds of the voters." Numerian

That's pretty clear isn't it. Massachusetts voters are not concerned about health care reform. They already have a program equal to or more comprehensive than the current legislation. There is no Teabagger movement emerging there. However, the information from polling and the general concern across the country about give aways to bankers while the rest of us get nothing stands out as the cause of voter disaffection and abandonment of the Democratic candidate.

(President Obama's) ... "actions this past year have been completely at variance with his rhetoric. He is, in fact, almost as completely addled as the bank executive cronies he appears to court and coddle. This past week also saw testimony from some of the top executives in the banking industry, including Lloyd Blankfein of Goldman Sachs, Jamie Dimon of JP Morgan Chase, and John Mack of Morgan Stanley. They were all very skilled at accepting regret for what happened without accepting responsibility." Numerian

This is the enduring problem with the White House, a tin ear to the fears of people enduring a real world recession/depression with fully allocated unemployment now at 17% (Bureau of Labor Statistics, U-6 results). The Democrats, Obama, Coakley, almost all of them fail to recognize these fundamental truths:

When you lose your job, you know it.

When face the loss of your home, you know it.

When your health insurance disappears, you know it.

When you get nothing while the banks get trillions of dollars, you clearly know it.

Who is to blame for the failed economy?

That's not a difficult question and there is an answer:

"These are men making millions of dollars a year, and they couldn't see the housing bubble of the century in front of their eyes? If Jamie Dimon had a soupçon of personal honor he would have already resigned over this failure, and fired all his top management to boot. We are left to conclude that bankers are as much bereft of personal honor as they are lacking in a sense of personal responsibility for their failures." Numerian

These are the FOB (friends of Obama) on public display, the people he's aligned with to serve whom? Not the 300 million citizens of the Unite3d States living in financial limbo and fear.

"Maybe the electoral situation will force President Obama to see the light, but if so, he is going to have to take dramatically different action to do anything serious about reforming the banking industry. Many of the ideas afoot, like a tax on banking profits or a consumer regulatory watchdog, are helpful but don't constitute real reform. Here, then, is an insider's view of what really is necessary." Numerian

Numerian has a clearly outlined eight step program to educate Obama, the Democrats, or anyone seriously interested in a real recovery for all citizens. That's essential but even before that, it is vital that we understand the clear message of the Massachusetts election -- it's not time to move to the center, it's time to move to sanity and an equitable, efficient economy for all of us.

Bernanke Seeks 'Full Review' by GAO of Fed's AIG Aid

2010-01-20T14:43:00.001-08:00

http://bloomberg.com/apps/news?pid=20601087&sid=awYX0GMcKKfQ&pos=1

Scott Lanman and Hugh Son
Bloomberg
Tue, 19 Jan 2010 19:12 EST

Federal Reserve Chairman Ben S. Bernanke invited congressional auditors to conduct a "full review" of the central bank's aid to American International Group Inc. after lawmakers accused the Fed of trying to conceal information about the bailout.

"The Federal Reserve would welcome a full review by GAO of all aspects of our involvement in the extension of credit to AIG," Bernanke said today in a letter to Gene Dodaro, acting head of the Government Accountability Office, that was released by the Fed.

Bernanke's letter coincides with efforts by lawmakers to obtain more details on the Fed's oversight of AIG after e-mails released this month showed that the New York Fed asked the company to withhold information from the public about payments to banks.

The House Committee on Oversight and Government Reform last week subpoenaed all documents related to the New York Fed decision to fully reimburse banks that bought protection from AIG and efforts to persuade AIG to keep information about the payments from the public. The panel set a deadline of 4 p.m. today for the Fed to provide the documents, including Timothy F. Geithner's e-mails, phone logs and meeting notes tied to the bailout of AIG.

Geithner to Testify

Treasury Secretary Geithner, who was head of the New York Fed when AIG was rescued in 2008, agreed to testify Jan. 27 before the House oversight panel on the bailout. Geithner said last week on CNBC that he wasn't involved in the decision to limit disclosures.

Chuck Young, a spokesman for the GAO in Washington, said the Fed's request "will have to be reviewed in the context of our future work priorities, given our existing statutory requirements related to federal efforts to stabilize the financial system, as well as requests from congressional committees."

Bernanke, 56, who may face a Senate confirmation vote this week for a second four-year term, said in today's letter that a GAO audit would "afford the public the most complete possible understanding of our decisions and actions in this matter," and "provide a comprehensive response to questions that have been raised by members of Congress."

Bernanke said the Fed will make all necessary records and personnel available to the GAO, which gained authority to audit the AIG rescue in a law that went into force in May.

Not 'Hiding Anything'

"It's just Bernanke's way of saying, 'Look, we did the things that were correct and we aren't hiding anything, and if you'd like to audit us, that's fine with me,'" said Douglas Lee, who runs Economics from Washington, a consulting firm in Potomac, Maryland, and is a former congressional economist.

The bailout, which began with an $85 billion Fed loan in exchange for a stake of almost 80 percent in the New York-based insurer, was revised three times to prop up AIG. The rescue now includes a $60 billion Fed credit line, an investment of as much as $69.8 billion from the Treasury and up to $52.5 billion to buy mortgage-linked assets owned or backed by the insurer.

The assistance included "significant conditions and protections for the taxpayers," Bernanke wrote in the letter. "The Federal Reserve and Treasury Department required new management of AIG; we obtained for the U.S. Government a significant stock interest in AIG that materially diluted existing shareholders of AIG; and we required AIG to immediately begin to wind down its systemically risky operations."

'Backdoor Bailout'

Representative Darrell Issa of California, the ranking Republican on the House oversight panel, and other lawmakers have called federal aid a "backdoor bailout" because of payments to Goldman Sachs Group Inc. and other banks.

In a Bloomberg Television interview today, Issa said Bernanke "seems unapologetic and unrepentant when it comes to the fact that he spent $62 billion of your tax dollars when $15 billion would have probably bought the paper on the street," referring to the payouts. "He doesn't want light shed by Congress. He only wants the GAO."

European bankers demand unprecedented austerity measures

2010-01-20T13:55:00.000-08:00

http://www.wsws.org/articles/2010/jan2010/pers-j19.shtml

19 January 2010

European bankers are demanding that countries on the brink of national bankruptcy impose brutal austerity measures on their populations.

In response to the global financial meltdown of September 2008, capitalist governments around the world assumed the debts of their respective banking elites, the result of speculative risk-taking and fraud on a monumental scale.

The universal line was that the big banks were “too big to fail.” The result of this plundering of national treasuries has been a resurgence in stock market values, massive profits for major banks, and a ballooning of banker’s bonuses, on the one hand, and a ruthless assault on the jobs, wages and living standards of the working class on the other.

Commenting on the increase of state indebtedness due to government bailout packages to the banks, a recent article in the British Financial Times notes: “There is no peacetime precedent for the current speed and scale of public debt accumulation …

it is difficult to assess the social tolerance for high debt levels, and … the pain of protracted fiscal restraint. In several EU member states, the threshold has already been breached. The spectre of sovereign default, therefore, has returned to the rich world.”

When it comes to weaker economies with high levels of indebtedness, European bankers and political leaders are making it clear that they are opposed to any bailout. Instead, these countries are expected to impose the type of “pain” which will stretch levels of “social tolerance” to the breaking point.

Last week, Jean-Claude Trichet, the head of the European Central Bank (ECB), declared that the ailing Greek economy would receive “no special treatment” to help it deal with crippling levels of debt. Trichet went on to threaten other highly indebted Eurozone countries with “rapid changes in market sentiment,” meaning downgrades on their debt and higher interest costs to borrow money on capital markets.

The ECB’s uncompromising stance against Greece is supported by Europe’s biggest economy, Germany, the driving force behind the 3 percent limit on state deficits as a proportion of gross domestic product laid down as the condition for membership in the Eurozone.

Trichet’s remarks were supplemented a few days later by Eurozone chief Jean-Claude Juncker, who declared in a letter to European finance ministers, “The European Commission should not hesitate to … address a warning to the member state not respecting criteria and commitments.”

Greece is currently tied with Ireland for having the highest level of projected budget deficits in the Eurozone—about 12.5 percent of GDP (i.e., over four times the upper limit allowed for Eurozone member states). In the past, Greek economic data have proved to be highly unreliable, and some sources declare that the real level of the country’s debt for 2009 will be closer to 14.5 percent. Spain is in third place, with a projected budget deficit of 11.2 percent, followed by France (8.3 percent) and Portugal (8.0 percent).

The “basket case” in Europe, with debt ratios far exceeding all of those above, is Iceland. Iceland is not part of the Eurozone, but its economy was virtually transformed into a huge hedge fund serving the financial markets of the European Economic Area. In the aftermath of the collapse of the Icelandic bubble last year, two creditor countries, Great Britain and Holland, are demanding the repayment of nearly €4 billion for their lost investments. This sum represents 50 percent of the current GDP of the small Icelandic economy.

In Greece, the social democratic PASOK government has already announced a plan to reduce the country’s deficit to within EU limits (i.e., under 3 percent of GDP) by the end of 2012. The plan involves major cuts to the country’s health system and a revision of its tax system, including increased taxes on basic goods such as tobacco and alcohol. These are exemplary of the sort of “painful” measures promised by Prime Minister George Papandreou shortly after taking office, and will have major repercussions for the living standards of ordinary Greek citizens.

Outlining the government program at a news conference on January 14, Finance Minister George Papaconstantinou declared, “We will attain our goals by any means possible.” Following a negative reaction to the Greek proposals by the ECB and financial markets at the end of last week, Papaconstantinou said he was prepared to “introduce a supplementary budget and take additional measures if necessary.”

Even such subservience to the dictates of the European Commission and the international banks is deemed insufficient.

European bankers and political leaders are demanding much more stringent measures by indebted states—even if it threatens the social stability of the countries involved. Whether governments receive any financial assistance from international and European banks is to be determined by their readiness to implement unprecedented austerity measures and deal with the resultant political consequences.

The same basic criteria apply to all Western governments, and not just those with the highest levels of debt.

This is made clear in a recent article in the Financial Times under the headline “Funding and the Patriotism Test.” Financial Times columnist Gillian Tett writes that the real challenge for individual states is to implement the budgetary cuts demanded by the banks and “even rewrite the social contract” without provoking a revolution.

Tett states: “What will be equally crucial in the coming years is not the sheer scale of debt, but whether governments can implement a rational and effective way of cutting it—and potentially allocating pain—without unleashing (at best) political instability, or (at worst) full-blown revolution.”

Tett notes that Icelandic voters voted to derail their government’s plans to repay its debt at the taxpayers’ expense, and speculates whether the British government has the nerve to impose swingeing budget cuts in an election year. She warns that “social cohesion and patriotism in the UK are fragmenting,” which means “the answer is simply unknown.” She concludes: “But the key point is this: if the past two years were a crucial test for global financial markets, the next two will be an equally critical test for the system of Western government.”

The social attacks demanded by Trichet, Juncker & company will inevitably exacerbate class tensions and lead to extreme political instability across the continent. As the comments cited above make clear, they will be accompanied by an intensification of attacks on democratic rights and state repression.

At the same time, they will fuel the centrifugal pressures which threaten to tear apart the European Union. Should any country prove unable to carry out the level of budgetary measures demanded by the banks and default on its debts, this will have a chain reaction impact on other ailing economies, undermining the viability of the euro.

The European working class is entering a new period of revolutionary struggle. It must counterpose to the class war program of the banks its own program, based on the perspective of establishing the United Socialist States of Europe.

Say "Rules," Not "Regulation"

2010-01-20T13:21:00.000-08:00

http://www.opednews.com/articles/Say-Rules--Not-Regulati-by-Susan-Strong-100118-90.html

January 19, 2010
By Susan Strong

Right now the ball is still up in the air on two issues vital to our future as a nation -- financial system reform and energy reform. Some congressional action has already occurred on each of these, but the battles are not over yet. That's why it's so important that we get our metaphors right, as we go into the home stretch.

Maybe you've noticed the sports metaphors I'm using? These are the frames we should all be choosing now, for both issues. Every human activity has rules, implicit or explicit. The biggest de facto lie of supply side economics has been saying that markets or foreign trade can be "free." There's no such thing. Even a village market high in the Andes has unwritten rules of order and fairness, and trade agreements are nothing but a set of rules about how business will be conducted. Moreover our planet's biosphere has iron rules. We are all going to pay very big penalties if we keep on breaking them.

Conservatives always scream about how "regulation" will harm business and our economy. In reality, that's just them demanding the right to play the economic game with no rules. Or to play the game with secret, arcane, or unstated rules that favor them cheating, stealing, being criminally negligent of public safety, and lying to the public about it. This is exactly why we need good government--we need an honest referee. (Yes, I know our government is compromised right now -- publicly funded elections at every level should be the next really big "rules" fight.)

The first step right now is to talk about playing by the rules again, the rules that keep us safe and help us get fair and square, win-win outcomes for every American.

Susan C.Strong, Ph.D.,

Founder and Executive Director

The Metaphor Project

http://metaphorproject.org/

metaphorproject@earthlink.net

More Intentional Media Misdirection (Wall Street)

2010-01-20T13:16:00.000-08:00

http://market-ticker.denninger.net/archives/1875-More-Intentional-Media-Misdirection-Wall-Street.html

Karl Denninger
Market Ticker
Tue, 19 Jan 2010 19:19 EST

The headline screams: Feds find little fraud at big Wall Street firms

While the American public and Capitol Hill lawmakers appear to blame wrongdoing on Wall Street as the primary cause of the global financial crisis, federal law enforcement agencies have had little success in finding and prosecuting instances of fraud at the nation's major investment firms.

That's because they're not looking - that is, they're willfully blind.

The article goes on to assert:
"Originating risky mortgages on its own does not violate the federal securities law," Ms. Shapiro said
That's true.

But lying about the quality of what you're selling both violates Federal Securities Law and in addition violates ordinary fraud statutes. When such solicitations are sent over wires (e.g. electronically) or via the mail both wire and mail fraud statutes are violated. If and when two or more people collude to take such an action federal racketeering statutes may be violated as well.

Ms. Shapiro testified that the SEC had reached settlements with six Wall Street dealers to settle charges of fraud in connection with the auction-rate securities. The SEC secured $60 billion through the settlements to provide full refunds for investors in the securities.

But Ms. Shapiro (and Eric Holder of the Department of Justice) didn't and still won't pursue the larger issue, which was the issuance of literal trillions in securitized debt in 2004, 2005, 2006, 2007 and 2008 following FBI and HUD warnings that very high percentages of mortgages contained in these securities were rife with fraud - yet the offering circulars omitted any mention of these findings and warnings.

Indeed, the "auction rate security" issue - and the "pursuit" of Wall Street on these securities - rests on the precise same issue as does the above - that is, the willful and intentional misrepresentation of risks in the offering circulars for these securities in which self-dealing and the understatement of risk associated with same was intentionally omitted from the prospectuses.

The simple fact of the matter is that there's no crime in speculating and being wrong.

But there are multiple crimes committed when one intentionally obscures, either through omission or commission, risks that one knows of and/or has been explicitly warned about.

Henry Boerner, chairman of the Governance and Accountability Institute, said the publics rage against Wall Street is focused not so much on suspected criminal activity as on the unfairness, lack of ethics and irresponsibility of bankers. However, he said, it is the regulators who should be faulted for allowing Wall Street bankers to take risks, shatter the economy and walk away with big bonuses.

"Voters, constituents, investors, employees, borrowers, homeowners, public officials, entrepreneurs - all have been impacted by the risky and at times reckless behavior of the leaders of the nations largest financial services organizations," he said.
Those who choose to accept risk, knowing fully what they're doing, are not now and never have been the issue. Such people deserve what they get - either for good or bad.

Attention has not been but should be focused on the willful and intentional lack of disclosure of known risks. Given the fact that The FBI was warning of an epidemic of fraud in "alternative" mortgage loan products as far back as 2004 and there were multiple investigations and disclosures in both the media and by HUD in 2006 and 2007 there is absolutely no excuse for the lack of full, fair and proper disclosure in the "products" that Wall Street created and sold on in the years 2004, 2005, 2006, and 2007 - without which neither the bubble or collapse would have occurred.

It has been and is my assertion that massive violations of the law were in fact committed during this faux "boom" and the ensuing bust, that the so-called "earnings" reported during that period in fact were not earned, and that buyers of this "debt" were in fact sold securities that, had the actual known characteristics of the loans contained in them been disclosed, were utterly unmarketable.

Pandit Running Out of Time to Clean Up Citi

2010-01-20T06:25:00.000-08:00

Citigroup is giving out bonuses while the stock is tanking? The insanity of it all!!!

Pandit Running Out of Time to Clean Up Citi
January 20, 2010, 5:28 AM

It is make or break time for Vikram S. Pandit.

For the last two years, Mr. Pandit has tried, with mixed success, to clean up the financial mess that is Citigroup. But some of his employees and shareholders are starting to lose patience, The New York Times’s Eric Dash writes. After many billions of dollars in losses, Mr. Pandit must deliver profits in 2010, or risk losing his job as chief executive, they say.

The latest sobering news from Citigroup arrived Tuesday, when the company announced a $7.6 billion loss for the final three months of 2009.

That quarterly hole more than swallowed all of Citigroup’s recent earnings and left it $1.6 billion in the red for the year. Citigroup suffered more than most large banks from the financial crisis, and its troubles are far from over, analysts say. Insiders say morale is low. Some Citigroup investment bankers and traders are threatening to leave for more lucrative jobs elsewhere. Employees in Citi’s giant consumer banking division say the bank seems rudderless.

It is not as if Mr. Pandit, 53, has not tried. Since succeeding Charles O. Prince III in late 2007, he has strengthened the lax risk management practices that got Citigroup into so much trouble. He has cut 110,000 jobs, about a third of the company’s work force, and stanched losses from toxic mortgage investments. Helped by three multibillion-dollar federal bailouts, he also has bolstered Citigroup’s finances and slimmed down the company, selling $351 billion in assets in a challenging market.

“We have made enormous progress in 2009,” Mr. Pandit said on Tuesday. The question is whether Citigroup and its leader are progressing quickly enough to satisfy restive employees and shareholders. Even some Citigroup executives say privately that they are worn out after a seemingly endless stream of late-night calls, emergency meetings and management turmoil.

And while Citigroup’s share price has recovered from the panicked lows of last March, when it was less than $1, it is still a small fraction of what it was before the crisis. On Tuesday, Citigroup rose 12 cents, to $3.54. That is down from a record high of $57 in December 2006.

Given that showing, Mr. Pandit is under pressure to prove that the company can finally make money. Prince Walid bin Talal of Saudi Arabia, a major Citgroup shareholder, said last week in an interview with the Fox Business Network that he had told Mr. Pandit that the honeymoon was over. “Now it’s time to deliver,” he said.

Citigroup’s fourth-quarter loss reflected a $10.1 billion accounting charge tied to leaving the federal bank bailout program. While other big banks have freed themselves from the government completely, taxpayers still own 27 percent of Citigroup.

Most of Citigroup’s recent losses stemmed from bad loans and investments it made before Mr. Pandit took over. Now he must lead the bank into a profitable future, not just cope with its past mistakes. And much will depend on the course of the global economy and the new regulations from Washington — things that are beyond his control. Any number of potential shocks, an economic setback in the United States, or a government default abroad, for example, could derail his plans for a turnaround.

“If you look at what he has done since becoming C.E.O., he has undertaken a lot of actions to steady the ship,” Jason M. Goldberg, an analyst at Barclays Capital, said of Mr. Pandit. “It’s been slow, but, that said, it takes a long time to turn an oil tanker, and clearly the current is stronger.”

Citigroup may be stronger than it was in the depths of the crisis, but it is still a symbol of the bailout era. The Financial Crisis Inquiry Commission, formed by Congress to investigate the causes of the panic, plans to devote a separate hearing to what went wrong at Citigroup.

Despite signs that Citigroup’s losses are moderating overseas, its North American mortgage and credit card businesses keep hemorrhaging billions of dollars given the weakness in the jobs and housing markets.

“Whether these trends continue will depend on the U.S. economy,” said John C. Gerspach, Citigroup’s chief financial officer, during a conference call with reporters on Tuesday. Mr. Gerspach also warned that more stringent credit card rules could cripple profits and that the fate of the administration’s mortgage modification program could affect the company’s results. That program, by allowing the bank to delay booking losses on eligible borrowers who fell behind on their loan payments, reduced its credit losses by about $200 million in the fourth quarter.

Whatever happens, Citigroup executives see a long slog ahead. When Mr. Gerspach was asked about the bank’s growth areas for 2010, he reframed the question and noted the bank’s long-term focus on emerging markets.

And Mr. Pandit’s job of regaining Wall Street’s trust could become even harder. Bank officials revealed on Tuesday that they had previously overstated certain accounting adjustments, which rise and fall each quarter based on investors’ perception of the riskiness of bank-issued debt. The officials identified the problem when they changed certain accounting practices. Now those figures need to be readjusted — lowering 2009 earnings by $840 million. “We corrected a mechanical miscalculation,” Mr. Gerspach said on the conference call without elaborating.

Citigroup’s traders and investment bankers, however, are focused on the present, specifically on the size of their year-end bonuses. After reports circulated that Citigroup’s bonus pool would be about $5.3 billion, roughly the same as in 2008, despite improved results for 2009, investment bankers started to grumble.

Although many could receive multimillion-dollar bonuses, the bank is capping cash payouts at $100,000. Executives say they are worried that some rainmakers will quit once bonus checks are distributed in the next few weeks.

Others worry that Mr. Pandit lacks the charisma to lead such a huge company, and relies too heavily on small circle of confidants who sometimes give him bad advice. Last week, he announced yet another management shake-up, this time removing Teresa A. Dial, Citigroup’s head of the global consumer banking, after just 18 months. Two of Mr. Pandit’s lieutenants, Don Callahan, administrative chief, and Lewis B. Kaden, a vice chairman, were also stripped of important duties.

Lisa Caputo, Citigroup’s chief marketing officer, is expected to take expanded responsibilities steering a new council, on which Mr. Pandit will sit, that will manage and position the global Citi brand, people briefed on the changes said. She also will lead digital advertising initiatives, though she may give up oversight of corporate communications. Mr. Pandit added strategic planning to the duties of Ruchi Madan, his chief of staff.

For now, at least, some analysts are still willing to give Mr. Pandit some additional time.

“While there is a lot of frustration, it’s not directed at Pandit,” Mr. Goldberg said. “It is directed at the predicament.”

Watchdog's Fate in Senate Key to Financial Reform

2010-01-19T19:02:00.000-08:00

http://www.commondreams.org/headline/2010/01/19-0

January 19, 2010 by Reuters
by Kevin Drawbaugh

WASHINGTON - The tag on U.S. financial regulation reform may as well say "Made on Wall Street" if bank lobbyists manage to gut the Obama administration's proposed consumer watchdog agency, said Elizabeth Warren on Monday.

Chairwoman Elizabeth Warren in this April 21, 2009 file photo taken on Capitol Hill in Washington. "The CFPA is the best indicator of whether Congress will reform Wall Street or whether it will continue to give Wall Street whatever it wants," she told Reuters in an interview. (AP Photo/Susan Walsh)The head of a panel monitoring the government's bank bailout program, Warren is a Harvard Law School professor and a fierce critic of the banking industry. She is also rumored to be front-runner to become the first chief of President Barack Obama's proposed U.S. Consumer Financial Protection Agency.

The CFPA would be a new government regulator devoted to shielding Americans from financial rip-offs like the abusive subprime mortgages at the core of the 2008 financial crisis, and the prolonged recession and bank bailouts that followed.

But the proposed agency, already pared back last month in the House of Representatives, is in trouble in the Senate.

Under pressure from big banks fighting hard to kill or weaken it, senators are said to be discussing downgrading the CFPA from an independent agency to something less than that.

Such a move would undermine the integrity of the reform project overall and set up the United States for another cycle of financial predation, crisis and bailout, Warren said.

The Senate will reconvene on Wednesday with analysts expecting agreement in the banking committee on financial regulation reforms within weeks.

"The CFPA is the best indicator of whether Congress will reform Wall Street or whether it will continue to give Wall Street whatever it wants," she told Reuters in an interview.

"The question of who is in control is not going to be revealed by some nuance of how to deal with leverage ratios or credit default swaps clearing," she said.

"It's not that those issues aren't important; they are. But those are skirmishes on the edges of a huge battle over reining in an out-of-control industry. The CFPA has real teeth, and it is the centerpiece of meaningful reform."

SWEEPING PLAN

The Obama administration last year unveiled a sweeping plan to tighten bank and capital market regulation in response to an international financial crisis triggered by the bursting of a U.S. property price bubble and cascading follow-on effects.

The European Union is also pursuing ambitious changes aimed at preventing another crisis in the future.

Central to U.S. and EU strategies is finding new ways to deal with so-called "too big to fail" financial powerhouses, such as Goldman Sachs, JPMorgan Chase, Morgan Stanley, Citigroup and Bank of America.

So dominant have these firms, and a handful of others, become that old laws governing them no longer work. Writing new ones means tackling the complexities of over-the-counter derivatives, capital standards, leverage ratios and the like.

In the swirl of debate over such esoteric topics, Warren said it is crucial that consumer protection be addressed and that banks, seeking to protect their profit margins, not be allowed to squash changes that would help everyday people.

Consumer protection is relatively simple and could easily be fixed, she said. The statutes, for the most part, already exist, but enforcement is in the hands of the wrong people, such as the Federal Reserve, which does not consider it central to its main task of maintaining economic stability, she said.

Setting up the CFPA is largely a matter of stripping the Fed and other agencies of their consumer protection duties and relocating them into a new agency.

PROFITS THREATENED

The problem is that a strong CFPA directly threatens the banks' ability to sell confusing, deceptive, fee-heavy financial products that generate huge profits, Warren said.

That's why the industry -- for many years the leading source of campaign funds to Washington politicians from both parties -- is so adamant in opposing the CFPA, making it politically dangerous for lawmakers to back it.

Warren said she is skeptical that the CFPA could be effective if it became a division of another agency.

"The industry wrote the rules that permitted them to behave so recklessly. They captured the agencies, which took the cops off the beat. They funneled enormous resources into the political process to make sure there wouldn't be any new cops.

"Then they made hundreds of billions of dollars by selling deceptive products. The sale and resale of those deceptive products crashed the economy. The industry then demanded government bailouts and guarantees," she said.

"Right now we're writing the final chapter in this story. It will show whether we're going back to the first move, letting the industry write the rules again, or whether the crisis actually changed something."

© 2010 Reuters

Financial panel's head wastes no time in going after bankers

2010-01-18T12:59:00.001-08:00

http://www.mcclatchydc.com/politics/story/82378.html

Posted on Thu, Jan. 14, 2010
Financial panel's head wastes no time in going after bankers
Rob Hotakainen | McClatchy Newspapers
January 15, 2010 05:12:39 PM

WASHINGTON — Phil Angelides wants some answers: With millions of Americans out of work and millions losing their homes, why is Wall Street is having a record year, with record profits and record bonuses for top executives?

As the chairman of the Financial Crisis Inquiry Commission, Angelides has a good perch to ask his questions. It's a special panel similar to the 9/11 Commission, charged with writing the official history of what caused the nation's financial systems to fall apart in 2008.

"We'll follow the evidence wherever it leads," Angelides said Wednesday as the 10-member bipartisan commission kicked off its first public hearing on Capitol Hill.

Angelides took square aim at the nation's top bankers, grilling executives from Bank of America Corp., Morgan Stanley, Goldman Sachs Group Inc. and JPMorgan Chase & Co.

He said the public was right to be angry with the bankers, and he vowed to get his answers. He's armed with subpoena power and more than 30 newly hired staff members to get the job done.

Angelides, 56, is a Sacramento, Calif., native who's been a prominent player in the state's politics. A millionaire Sacramento businessman and developer, he's a major Democratic contributor who served as state treasurer from 1999 to 2007 and ran for governor in 2006, only to be trounced by Arnold Schwarzenegger.

Angelides, appointed to his new position by Democrats House Speaker Nancy Pelosi of California and Senate Majority Leader Harry Reid of Nevada, said the commission would conduct a yearlong "full and fair inquiry into what brought America's financial system to its knees."

He said the commission faced a "daunting and complex" assignment and that it expected to interview hundreds of witnesses. A report is due in December.

"We'll use our subpoena power as needed," Angelides said. "And if we find wrongdoing, we will refer it to the proper authorities. That's what the American people want. That's what they deserve. And that's what this commission is going to give them."

Angelides wasted no time Wednesday in putting bankers on the hot seat, and the executives were quick to acknowledge their role in the financial collapse.

He reserved some of his toughest questioning for Lloyd Blankfein, the chairman of the board and chief executive officer of Goldman Sachs. Angelides scolded the company for escaping the worst of the subprime mortgage crisis by selling $40 billion in securities backed by risky home loans while betting that the housing market would plummet.

"I'm just going to be blunt with you," he told Blankfein. "It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars. It doesn't seem to me that that's a practice that inspires confidence in the market."

Blankfein acknowledged that his company had engaged in improper behavior, adding that he regrets "the consequence that people have lost money in it."

Commission members said a big part of their job would be to try to explain the crisis to the public in the simplest terms possible. Angelides has had no shortage of analogies.

Talking up his job in a recent speech in Washington, Angelides said an accounting of the financial industry was "desperately needed." He noted the difference between today and the financial crash of 1929, when people were "throwing themselves out the windows" on Wall Street.

"This year, they're lining up for bonuses," Angelides said. "There has been no serious self-examination on Wall Street of what has occurred and what should be in the future. I liken it to someone who has had a significant heart attack, who was a bad eater, a drinker, no exercise. Three weeks later, they're feeling better, and the fact is that the fundamental problems still remain. And so now is the time, I believe, for self-examination."

Bring Back Glass-Steagall

2010-01-18T12:28:00.000-08:00

http://online.wsj.com/article/SB10001424052748704586504574654751857203602.html?mod=djemEditorialPage

JANUARY 12, 2010, 9:36 P.M. ET
Bring Back Glass-Steagall
Banks that behave like hedge funds don't deserve guarantees.
By THOMAS FRANK

Last month, Sens. Maria Cantwell and John McCain proposed a measure that would revive parts of the old Glass-Steagall Act, the 1933 law that separated investment from commercial banking. After having been diluted many times over the years, Glass-Steagall was largely repealed in 1999, permitting a wave of consolidation in the financial industry.

The latest crisis has provoked a new debate over the old regulatory regime. Nobel laureate economist Joseph Stiglitz has argued that the repeal of Glass-Steagall had an "especial role" in making the financial calamity of 2008 possible. Former Fed Chairman Paul Volcker, currently the head of the President's Economic Recovery Advisory Board, has called for a new separation between commercial banking and riskier financial activities.

Any discussion about breaking up the financial industry, however, runs into a powerful stereotype: the overwhelming consensus belief in the risible backwardness of Glass-Steagall.

In 1999, the last time the 1933 law was being debated, it was routinely described as a "Depression-era" law, a "relic" of a benighted age, "venerable," "obsolete," "outdated," "archaic," insufficient to meet the public's "sophisticated needs" in the bold new era of accelerated everything. The measure that overturned Glass-Steagall in 1999 was, of course, called the "Financial Services Modernization Act."

Having government forbid everyday commercial banks to take gambles on high-risk schemes, why, that just didn't make sense to the enlightened minds of 1999. We had learned by then to trust the market. Besides, what could go wrong? Fears about speculative risk were so 1933!

Today, it is that old critique of Glass-Steagall that strikes one as a relic in need of modernization. Reading through journalistic accounts of the old regulatory regime from 1999 is like watching long reels of ecstatic dot-com commercials or flipping through the metallic-and-fluorescent pages of old copies of Wired magazine and remembering the mind-blowing prosperity that the Internet was supposed to be bringing us.

The business-culture delusions of the '90s may seem obvious today. But at the time, our great thinkers assured us that we had turned a historical corner and the "old rules" no longer applied. Prosperity was eternal. And government was a dinosaur, serving only to impede our pursuit of info-age excellence. Again and again, the narrow agenda of particular interests were cast as freedom for all of humanity.

Consider "The Twilight of Sovereignty," the influential 1992 manifesto by former Citicorp CEO Walter Wriston. Here was a man who had spent much of his career warring against Glass-Steagall and other federal banking regulations. In his book, however, he did not criticize regulation so that Citi might be permitted to become a grotesquely distended too-big-to-fail financial supermarket gambling in whatever schemes would bring the richest bonuses. Certainly not. Wriston instructed us to give up on regulation because we had entered a new stage of history and regulation was now technologically obsolete. "How does [government] track or control the money supply when the financial markets create new financial instruments faster than the regulators can keep track of them?" he asked.

Half-baked historicism like that was persuasive stuff in those days. On the occasion of the old banking law's repeal, President Bill Clinton intoned that Glass-Steagall was "no longer appropriate to the economy in which we live. It worked pretty well for the industrial economy. . . . But the world is very different."

Today, as we begin to debate Glass-Steagall all over again, the old stereotypes are simply being pulled out of deep-freeze. The futility of efforts to "turn back the clock" are noted. A clever put-down from an anonymous Treasury official is much repeated: it "would be like going back to the Walkman."

The old law's revival is said to be a way of pandering to the low emotions of the public, as opposed to its higher faculties of reason. A Business Week story on the subject understands the Cantwell-McCain proposal as a way of "soothing public anger over bailouts and bonuses." Politico's account of the measure chalks the whole thing up to "populist angst," whatever that is.

What no one has yet grasped is that pooh-poohing Glass-Steagall in this way is about as sound a move as was slapping down your savings on shares of TheGlobe.com.

One of these days, we will finally dispel the "New Economy" mysticism that beclouds this issue and begin to think seriously about how to re-regulate the financial sector. And when we do, we may find that the answer involves some version of the idea behind Glass-Steagall—drawing a line between banks that the government effectively guarantees and banks that behave like big hedge funds, experimenting with the latest financial toxins. Hopefully, that day will come before Wall Street decides to take another headlong run at some attractive cliff.

Write to thomas@wsj.com.

World Bank 'Destroyed Basic Grains' in Honduras, Haiti

2010-01-18T12:06:00.001-08:00

http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=aGxiawAqP0.w

World Bank 'Destroyed Basic Grains' in Honduras, Haiti
Alison Fitzgerald, Jason Gale and Helen Murphy
Bloomberg
Thu, 15 May 2008 06:40 EDT

Fidencio Alvarez abandoned his bean and corn farm in southern Honduras because of the rising cost of seeds, fuel and food. After months of one meal a day, he hiked with his wife and six children to find work in the city.

''We would wake up with empty stomachs and go to bed with empty stomachs,'' said Alvarez, 37, who sought help from the Mission Lazarus aid group in Choluteca in January. ''We couldn't afford the seeds to plant food or the bus fare to buy the food.''

Honduran farmers like Alvarez can't compete in a global marketplace where the costs of fuel and fertilizer soared and rice prices doubled in the past year. The former breadbasket of Central America now imports 83 percent of the rice it consumes -- a dependency triggered almost two decades ago when it adopted free-market policies pushed by the World Bank and other lenders.

The country was $3.6 billion in debt in 1990. In return for loans from the World Bank, Honduras became one of dozens of developing nations that abandoned policies designed to protect farmers and citizens from volatile food prices. The U.S. House Financial Services Committee in Washington today explored the causes of the global food crisis and possible solutions.

The committee examined whether policies advocated by the bank and the International Monetary Fund contributed to the situation. Governments from Ghana to the Philippines were pressured to cut protective tariffs and farm supports and to grow more high-value crops for export, reports by the Washington-based World Bank show.

Haiti Pressure

The IMF pressed Haiti, as a condition of a 1994 loan, to open its economy to trade, Raj Patel, a scholar at the Center for African Studies in the University of California at Berkeley told the committee. When trade barriers fell, imports of subsidized rice from the U.S. surged, devastating the local rice farmers, Patel said.

''That is very odd,'' said committee chair Barney Frank, a Massachusetts Democrat. ''For anyone to have looked at Haiti at that time and thought that it was a functioning economy is a sign I think of ideology going rampant.''

''Of course they got it wrong,'' said Robert S. Zeigler, director-general at the International Rice Research Institute, southeast of Manila. ''It will work if you're an extremely wealthy country and you can import rice at any price. But if you're not an extremely wealthy country, I think that's very poor advice.''

'Command and Control'

The bank's strategy -- summed up in a 1989 article by its chief economist for South Asia, John Williamson --became known as ''The Washington Consensus.''

''The focus of the liberalization was on lowering domestic food prices,'' said Mark Plant, the IMF's deputy director of policy development in Washington. Governments' ''command and control'' policies increased consumer costs and cut farmer income, he said.

Williamson, now affiliated with the Peterson Institute for International Economics in Washington, said in a May 9 interview that the ideas are still sound, though they may have been pushed too hard by the World Bank.

''My own view is that all those things are good for countries,'' he said. ''But I'm not terribly sympathetic with the World Bank going in and laying down a list of things countries have to do.''

Highest Tariffs

Honduran agriculture stagnated through the 1980s because of subsidies and market controls, prompting the bank to recommend economic changes, said Adrian Fozzard, the institution's manager for Honduras.

Rice farmers in Honduras were protected by the highest import tariffs in Central America when former president Rafael Callejas took office in 1990 with the economy stalled. The trade barriers that helped the country meet more than 90 percent of domestic demand were dismantled under an agreement for a World Bank loan in September that year, allowing cheaper imports to flood the market.

The requirements for the loan included eliminating import restrictions and surcharges and reorganizing the agricultural finance system, according to Eurodad, a network of 54 European non-governmental organizations that was granted access to the World Bank's loan database to monitor loan conditions.

Prices Plunge

Prices paid to farmers fell by 13 percent in 1991 and 30 percent more in 1992, according to the Food and Agriculture Organization in Rome.

In August 1993, the World Bank advised Honduras to adopt a second round of economic changes as part of another loan, according to Eurodad. Those conditions included eliminating all price controls and cutting tariffs further.

''Remaining trade and price controls should be eliminated,'' bank officials said in a 1994 internal report. ''The program of privatization of state silos should be completed; and the use of a grain reserve for price stabilization should not be reinstated.''

The report's author, Daniel Cotlear, now a World Bank economist for Latin American and the Caribbean, declined to comment for this story.

The bank pushed the policies because food prices fell in real terms for at least two decades, and few economists expected that to change, said Mark Cackler, manager of its Agriculture and Rural Development Department. Free trade and open markets remain the best path to competitiveness, he said.

''There are actually opportunities to reduce protectionism that have a beneficial impact,'' Cackler said.

World Bank Reaction

World Bank spokesman Sergio Jellinek said it's impossible to connect today's food price crisis with 20-year-old free-trade policies.

''The price of food, especially grains, is determined in the international market and not in the local markets,'' he said. ''So if a country such as Mexico, or Colombia, or El Salvador or Honduras would have multiplied by three or four its grain production, that would not have significantly affected world supply. And food prices in local markets would be as high as they are today.''

There now are 1,300 rice farmers in Honduras, compared with more than 20,000 in 1989, according to human rights group FIAN.

''The international lending agencies have destroyed the basic grains industry in Honduras,'' said Gilberto Rios, executive secretary of FIAN Honduras. ''The best land now produces things like African palms, which are not for consumption.''

Last month, thousands of activists, students and farmers blocked highways and rallied in the capital, Tegucigalpa, to protest food prices and policies that made their country the most open to free trade in Latin America -- and one of the poorest in the Western Hemisphere.

Not 'a Boon'

Per capita income rose by 0.5 percent a year from 1990 to 2004, one of the slowest growth rates in Latin America, a January report by the International Food Policy Research Institute found.

''Trade liberalization does not appear to have been much of a boon to the Honduran economy,'' the Washington-based institute said in the report.

In the Philippines, the World Bank encouraged the country, the world's biggest importer of rice, to stop striving for self- sufficiency and instead to diversify into crops like tropical fruits which have greater export value.

It approved a $60 million loan in 2004 to help the Philippines' Department of Agriculture become more market- oriented, diversify crops and stimulate private investment.

A World Bank Group technical working paper in June 2007 said the government shouldn't stockpile grain to stabilize prices. Rather, it should keep enough on hand for disasters and social welfare programs. It also advocated opening the domestic market to competition by cutting tariffs.

Philippines Reverses Course

Philippine President Gloria Arroyo now says the country has to change course toward being able to feed itself.

''We must move toward more self-sufficiency, not necessarily 100 percent, but more self-sufficiency, less import dependence on rice,'' she said last month.

African nations including Ghana and Mali similarly followed World Bank advice. In 1992, the bank required Ghana to cut tariffs on rice to 20 percent from 100 percent, leading to a tripling of cheap rice imports, Patel said.

In 2004, the bank advised Ethiopia to stop providing fertilizer and credit to small farmers as part of a debt relief package, and it persuaded Indonesia to dismantle its rice marketing board, according to Elizabeth Stuart in Washington, who is the head of relations with the World Bank and IMF for Oxfam International, the U.K.-based alliance fighting poverty.

Cheap Loans

Now farmers are asking the Honduran government to reverse policy and provide cheap, long-term loans to buy the seeds and fertilizers they need to survive.

The government of Honduras yesterday asked the IMF to send a team to the country to examine how the rising food and fuel prices are affecting the economy and whether they should reconsider some aspects of a current economic program, the IMF said in a press release.

''We haven't seen the worst of it yet; that's to come,'' said Jarrod Brown, president of the Mission Lazarus. ''They need help now.''

For Alvarez and his family, help can't come quickly enough.

''We want to go back to our land, it's all we have,'' he said.

The Fed Earns An Astounding $45 Billion In 2009

2010-01-18T11:49:00.001-08:00

http://247wallst.com/2010/01/12/the-fed-earns-an-astounding-45-billion-in-2009/?icid=main|htmlws-sb-w|dl3|link2|http%3A%2F%2F247wallst.com%2F2010%2F01%2F12

The Fed Earns An Astounding $45 Billion In 2009
January 12, 2010

The Federal Reserve made $45 billion last year, according to an exclusive report in The Washington Post. That is the most the Fed has earned in 95 years.The central banks still owns securities that it may sell at a loss this year, but they could also gain back most of their value depending on the direction of the credit markets over the next several quarters.

The Fed has refused to detail its loan activities as the credit crisis deepened in 2008. These actions involved emergency loans to a number of large US banks. It is now obvious that the central bank made a small fortune on those loans and other activities to prop up the flagging financial system. It also made money on one of its standard functions to clear money through the bank system which garners the Fed fees.

The Administration recently raised the prospects of a large tax on banks to cover losses taxpayers may have taken on bank aid including the TARP. The Fed’s numbers raise the issue of whether the government has already profited substantially from its bailout activity.

The White House has suggested in recent days that it may levy fees on large banks to help fund the national deficit. These fees may be based on bank liabilities on the theory that firms with bad balance sheets should cover future taxpayer risk with a contribution to the government. The alternative proposal is the most profitable banks pay high taxes because they can most readily afford them.

The tax on banks is rife with conflicts because financial firms may pass tax costs on to their customers which would take money from the pockets of both consumers and businesses. That would make the bank tax regressive as the recovery is based on a sharp increase in consumer and business spending.

The Fed’s profit will be sent to the Treasury which will help lower the deficit. The profit proves that the Fed could potentially be a near-permanent contributor to government income. Traditionally, the central bank has been a policy body and has not been run as a source of funds. A change in that role could make a bank tax much less necessary.

Racketeering 102: Fed's Lacker Threatens With Mutually Assured Destruction If Fed Audited

2010-01-17T06:22:00.000-08:00

http://www.zerohedge.com/print/56993

Racketeering 102: Fed's Lacker Threatens With Mutually Assured Destruction If Fed Audited
By Tyler Durden
Created 01/15/2010 - 15:14

It was a four short months ago that the Clearing House Association, in a court filing, threatened with untold destruction [1]if the Fed was ordered to submit to an audit that would expose all their dirty laundry in the form of undervalued assets used as collateral by the Federal Reserve. We recall the direct threat used back then:

If the names of our member banks who borrow emergency funds are publicly disclosed, the likelihood that a borrowing bank's customers, counterparties and other market participants will draw a negative inference is great. Public speculation that a financial institution is experiencing liquidity shortfalls - which would be a natural inference from having tapped emergency funds - has caused bank customers to withdraw deposits, counterparties to make collateral calls and lenders to accelerate loan repayment or refuse to make new loans. When an institution's customers flee and its credit dries up the institution may suffer severe capital and liquidity strains leaving it in a weakened competitive position.

It is fitting that as attempts to expose the Fed's shady practices accelerate on all fronts, and include direct legal approaches as well as subpoena demands by various politicians, that a Fed President would once again come out today, and recap the good old Mutual Assured Destruction treatise that both Wall and Main Street have gotten used to since the beginning of the bailouts. Somehow financial M.A.D. makes an appearance every time the bankers demand something and have no other rational justifications. So why not just feed the stupid plebs something about the Apocalypse that is certain to transpire should the financial oligarchs not get their way. Today was no exception.

Enter Richmond Fed president Jeffrey Lacker. His words, from prepared tesimony to the Richmond Risk Management Association [2]:

Some observers argue that the financial reform agenda should include changes in the role and governance of the Federal Reserve. One proposal would extend the GAO's authority to audit Fed operations to include monetary policy decisions. Other proposals would alter our governance structure by making Reserve Bank directors and/or presidents political appointees. I know it might sound self serving for a Fed insider to object to such changes, but I believe such moves would present very serious risks to the effectiveness of monetary policy and ultimately to economic growth and stability. Looking across time and across countries, there is abundant evidence that economic policy and macroeconomic performance are generally better when the central bank's monetary policy decisions are shielded from the political pressures of the moment. For an illustrative case, one need only look to the 1970s in the U.S., when political influence led to high and volatile inflation that disrupted economic growth. The governance of the Federal Reserve System balances accountability, with ultimate authority resting in Washington, and independence, with the participation of non-political leaders from throughout the country. While the performance of our economy in the last two years has clearly been unsatisfactory, and policy mistakes may have contributed to our problems, the Fed's balanced, hybrid governance structure has, I believe, given us a good record over the better part of three decades. Disrupting that balance would pose another long term challenge for our economy.

While Mr. Lacker's testimony is indeed self-serving, it is also patently flawed. There is nothing in the proposed Fed Transparency law that would imperil the Fed with direct political intervention, and nothing that would impact its monetary policy decision-making appartus. Perhaps it is about time someone highlighted the actual truth behind the various Ron Paul et al proposals, which seek not contemporaneous information of decision-making to the GAO or otherwise, but a delayed, 6 month-lagged disclosure. How this impairs monetary policy independence is incomprehensible.

Furthermore, the claim that the Fed's "balanced, hybrid governance structure has given us a good record over the better part of three decades" is very much subject to a recount. If Mr. Lacker deems that Fed's actions over the past three decades, which culminated with the implosion of the biggest credit and housing bubbles this country has ever seen, courtesy of self-serving (that phrase again) monetary flaws, are indicative of a "good record" then we certainly agree. We also would recommend that the Fed president immediately seek a medical prescription for Geodon [3]or, if that particular medicine will not be covered by the soon enacted "new and improved" nationalized healthcare system, any other over-the-counter antipsychotic medication that is freely available.

The biggest problem with the Fed is its continuous insistence that the kleptocratic oligarchy always knows not only what is in everyone's best interest, but is so much smarter than all, that stupid peasants getting advance knowledge of just how impaired the major TBTF institutions are, would immediately risk bank runs. Once again, it never dawns upon these enlightened gentlemen, that such rumor-based "bank runs" are merely a byproduct of never having the sufficient information to make informed decisions about these very companies in real time. And when the shit does hit the fan (as it always eventually does under the Fed's "aegis") the outpouring of panic is enough to bring the system down in a matter of hours as September 18, 2008 demonstrated [4].

Yet if American citizens are not allowed to get a glimpse into the true state of the banking system, which consists of publicly traded institutions for the most part, but also are the recipients of trillions of dollars of direct taxpayer cash and guarantees, then there never will be a right time to attain such information.

It is, and has always been, in everyone's best interest to have as much information about each and every financial institution, be it small regional banks, TBTF failures such as Citi, Fixed Income monopolists, or the nexus of all: the Federal Reserve. And until such information is freely available to all, not just provided to SIGTARPs and other investigatory queries, which all operate underneath the radar of full disclosure, the system will continue to be on edge, and constantly ready to collapse at a minute's notice, the second it becomes clear that the Fed, contrary to its desires, is unable to conduct the first ever successful experiment involving a planned and controlled economy.

Lending Takes Another Teeth-Kick

2010-01-15T15:36:00.000-08:00

http://www.oilprice.com/article-lending-takes-another-teeth-kick.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+oilpricecom+%28Oil+Price%29

Dave Forest Published : 15th Jan 2010
The "Financial Crisis Responsibility Fee" dropped today on Capitol Hill.

The odd-sounding measure ("You've caused a financial catastrophe. That'll be $8.50 please.") is the Obama government's latest plan to recoup the cost of bailing out the financial system over the last 18 months.

The plan basically taxes large American banks. Based on how aggressive they are.

The FCRF will require large financial institutions (those with more than $50 billion in consolidated assets) to pay fees equal to 0.15% of their "covered liabilities" each year. Covered liabilities defined as the total value of the bank's assets minus Tier 1 capital (cash on hand) and bank deposits (cash stashed at the bank by customers).

This formula has a few implications. It rewards banks (via lower fees) for holding on to cash and encouraging customers to make more deposits. The structure charges higher fees to banks with large asset bases.

For most banks, the most important and numerous assets are loans. Money lent to consumers and businesses, providing interest income.

Under the new fee (slated to come into effect June 30), large banks will get penalized for lending. More loans = more assets = higher fees.

Going forward, when loan officers review an application they will have to build an extra 0.15% into their expenses for lending the money. Making loans less profitable and more risky. More borrowers will be turned down as a result.

The measure comes at a tough time. The American banking system is already going through its steepest lending decline in 35 years. As reported by the Federal Reserve, outstanding loans at U.S. commercial banks have fallen by $600 billion since October 2008.

In fact, due to statistical anomalies I've discussed in the past, the actual decline is even larger. It's likely that outstanding loans in America have fallen by a staggering $1.2 trillion.

That's a lot less money circulating in the economy. And a major headwind to economic recovery and financial growth.

The new crisis fee is one more hurdle the banking system will have to jump if lending is to be restarted. This in addition to high unemployment, low interest rates, and the fear of more losses on mortgage-backed securities.

The fee legislation is particularly interesting because the Obama administration was recently berating bankers for not lending more. The government is pushing banks to issue more real estate loans as part of the Making Home Affordable program.

Administrators have even set up an elaborate system that penalizes banks if they don't meet loan targets (or have a really, really good explanation about why they fell short).

But the government can't have things both ways. If you tax banks for lending, they will lend less. No matter how much you bully them.

Here's to smart lending,

Dave Forest
dforest@piercepoints.com
www.piercepoints.com

JPMorgan loan losses overshadow higher profit

2010-01-15T13:45:00.000-08:00

http://www.reuters.com/article/idUSTRE60E1UO20100115

Elinor Comlay
Reuters
Fri, 15 Jan 2010 09:26 EST

New York - JPMorgan Chase & Co reported deep losses on mortgage and credit card loans in the fourth quarter, dashing hopes that consumer credit is on the mend and sending the bank's shares lower in premarket trade.

Quarterly profit soared to $3.3 billion, topping expectations, but analysts had been hoping for signs that the bank's credit costs were leveling off or ever starting to fall.

"I don't think we can take away from these results that we are any further along in the (economic) recovery than we thought we were," said David Dietze, chief investment officer at Point View Financial Services.

JPMorgan, the first of the major U.S. banks to report fourth-quarter results, said it set aside more money in the period to cover consumer credit losses.

Investors were keen to hear the bank's forecast for this year, and JPMorgan's projections were hardly sunny. In a conference call with reporters, Chief Financial Officer Michael Cavanagh said the bank has a "cautious outlook" for 2010.

He said JPMorgan would boost its dividend this year "if we're lucky." The bank now pays 5 cents per share quarterly, and many investors expect an increase.

The New York-based bank's quarterly profit amounted to 74 cents a share. Analysts on average expected 61 cents, according to Thomson Reuters I/B/E/S. Year-earlier earnings were $702 million, or 6 cents a share.

Revenue, excluding assets that have been packaged into bonds and largely sold to investors, totaled $25.2 billion, falling short of analysts' average forecast of $26.8 billion.

Chief Executive Jamie Dimon said in the earnings statement, "While we are seeing some stability in delinquencies, consumer credit costs remain high, and weak employment and home prices persist."

JPMorgan shares were down 0.8 percent to $44.35 in premarket trading. Shares of other major banks were also lower.

Consumer Exposure

The bank's large mortgage and credit card businesses have seen rising credit costs in the last year, offset only by record investment banking revenue.

JPMorgan said it set aside $4.2 billion to cover mortgage losses in the fourth quarter, up $653 million from a year earlier. Loan loss reserves in its commercial banking unit increased to $494 million from $190 million.

Prime mortgage net charge-offs -- loans the bank does not expect to be repaid -- soared to $568 million, or an annualized 3.81 percent of the mortgage book, from $195 million, or 1.2 percent, a year earlier.

"JPMorgan is the bellwether, it is the best, most well-capitalized, best-managed bank," said Jamie Cox, managing partner at Harris Financial Group in Colonial Heights, Virginia. "You would hope they'd be the first bank to be able to begin the process of paring down loan loss reserves."

JPMorgan's credit losses could indicate further trouble for Citigroup Inc, which reports quarterly results on Tuesday, and Bank of America Corp, which reports on Wednesday. Both also have large consumer exposure.

Bankers escape bonus blow

2010-01-15T13:42:00.000-08:00

http://www.ft.com/cms/s/0/caffc078-fc97-11de-bc51-00144feab49a.html?ftcamp=Late_headline1/NL/CEJan2010/Vanilla_bns_eu/0/&nclick_check=1

Bankers escape bonus blow
By Patrick Jenkins and Megan Murphy
January 8 2010

City bankers will suffer little or no impact from the bonus supertax imposed by the government last month, according to a Financial Times poll of leading investment banks.

Most banks, polled in an anonymised survey, said they would absorb all or part of the cost of the one-off 50 per cent tax by inflating their bonus pools, even at the risk of irritating the government and their own shareholders.

The results chime with intelligence garnered by headhunters. “The tax is going to be 90 per cent absorbed by the banks,” said one senior recruitment consultant with clients in the City.

In many cases that will mean banks doubling bonus pools, with the cost of the tax borne by shareholders. Dividends, already under pressure as regulators force banks to retain earnings to boost capital, are likely to be hit, bankers concede.

Some investors are growing increasingly irritated with the banks’ plans. “Remuneration structures that seek to increase tax efficiency should not result in additional costs to the company,” the Association of British Insurers warned on Friday.

One leading investor said: “Companies can’t increase the cost of employment to avoid staff paying their tax bills. We would like to see fewer banks held to ransom by staff demanding big bonuses.”

On Friday, JPMorgan is due to report its 2009 results, the first of a clutch of US banks expected to unveil bumper profits – and bonuses – over the week.

UK and continental European banks will report over the next six weeks, with several admitting in the FT questionnaire that their stance on the bonus tax would be driven by the precedent set by US groups, and the competitive pressure to keep pace with rivals’ bonuses.

Bonus pay-outs at the part-nationalised Royal Bank of Scotland, which announces results at the end of February, will be particularly sensitive.

US institutions are more likely to absorb the tax entirely, according to the poll. However, some – both US and European – said they would seek to split the cost of the bonus tax between the bank and staff. Where the cost was shared with bankers, it would be globally, not just with reference to London-based staff.

The strategy will annoy the Treasury. When Alistair Darling, the chancellor, announced the supertax, he predicted it would deter banks from paying big bonuses, raising only a modest £550m in revenue.

Earlier this week, the Treasury acknowledged it had failed in its aim of changing banks’ behaviour. However, that failure will be sweetened by the extra revenue it will now receive.

In the FT questionnaire, banks on average said they expected the tax to generate £5bn for the Treasury.

The FT sent its questionnaire to the leading investment banks in the City. JPMorgan, Goldman Sachs and Barclays Capital did not submit answers.

Additional reporting by Kate Burgess

Banking should be boring

2010-01-10T17:23:00.000-08:00

http://www.mercatornet.com/articles/view/banking_should_be_boring/

Alejo José G. Sison | Friday, 8 January 2010

Changing the rules of the game may help safeguard our money. But the most important reform is bankers' characters.

Late last year, Alistair Darling, the UK’s lord of the Exchequer, introduced a one-off 50 percent tax on bonuses upwards of £25,000 (around US$40,000). This is just a prelude to a 50 percent income tax rate to be slapped on the highest earners beginning next fiscal year. City executives cried foul and threatened to leave for less oppressive fiscal climes However, both the French premier, Nicholas Sarkozy, and the German chancellor, Angela Merkel, thought it was an initiative worth emulating, and pressure has started to mount on US president Barack Obama to follow suit. Is this just or is it simply giving way to envy and vengeance in the season of good cheer?

Green shoots notwithstanding, the ghost of the recent economic crisis still looms large and heavy on most of us. The record profits on which those bankers’ bonuses are based would not have been possible without government bailouts. And even if some banks never received public money directly, nonethelesss they equally benefited from tax-payer financed liquidity. Without such guarantees, they would have gone the way of Lehman Brothers and Bear Stearns. Instead of treating themselves to obscene bonuses —half of their annual revenue or $17B for Goldman Sachs this year— bankers could use the money to shore up capital and secure their positions..

This discussion brings us back to the issue of bankers’ pay. For Harvard’s Lucian Bebchuk, there seems to be a consensus that compensation structures of financial firms incentivize excessive risk-taking, while shielding agents from losses and a substantial part of their responsibilities. Bankers’ pay focuses on short-term results and rewards them accordingly, even if outcomes are later on reversed. Likewise, though stock options may align bankers’ interests with shareholders, they still leave out the concerns of significant groups of bondholders, depositors and the government as ultimate guarantor of the bank’s stability. To avoid instances of "pay without performance", Bebchuk suggests delaying the time when options could be cashed out from when they vest and tying compensation to a broader basket of shares and bonds, aside from common stock.

For his part, Steven Kaplan, from the University of Chicago, is quite sceptical about the negative impact of bankers’ remuneration on overall economic health. He thinks, rather, that the blame lies on government regulators who implemented highly expansionary monetary policies for too long due to largely political reasons. What we should do now is to raise pro-cyclical equity capital requirements and contingent long-term debt. That means increasing equity percentage during booms and converting debt into equity during busts. In effect, it consists in "saving for a rainy day" instead of "making hay while the sun shines".

Despite their differences, Bebchuk and Kaplan coincide in their fundamental strategy. Both seek to change bankers’ behaviors exclusively by tweaking individual economic incentives. But these aren’t the only factors that affect conduct nor are they always the most important ones. Incentives aren’t physical objects and a $100 bill means different things to different people. In consequence, they react in an unpredictably different manner.

That’s why none of the measures that Bebchuk and Kaplan recommend are foolproof. At most, they could only be followed prudentially. Setting a later date for cashing out options from when they vest or linking pay to more indicators than the price of common shares may make sense, but it’s not the government’s role to decide when or which other indicators to consider. Similarly, increasing procyclical equity capital requirements and contingent long-term debt may be healthy, but the exact percentage is again a moving target, even for government. Overshoot it and you prevent banks from lending money, which is what they should be doing in the first place. This also explains why the evidence thus cited on the relation between a variety of pay packages and corresponding employee performances is far from conclusive. In a given year, a bank executive could forego all salary and bonus, yet still give it his very best.

As for the much bandied around danger of a brain-drain in the banking sector or a stampede from certain jurisdictions once higher taxes come in place, I seriously doubt that any of this would happen. More things should tie a person to work in a firm or a city besides money. Otherwise, it would be best to let him go.

Banking is essentially taking care of other people’s money and as such is invariably discreet and boring. It’s not "doing God’s work" as Lloyd Blankfein of Goldman Sachs infamously alleged, but a job where reckless thrill-seekers and risk-takers need not apply. Neither should we buy into the claim that technology and globalization have magically transformed bankers’ productivity to justify stratospheric incomes. Money doesn’t grow simply because it changes hands faster, but because it is carefully invested. If ever, increased connectedness has also made all of us even more vulnerable.

Perhaps dwelling too much on the rules and the moves of bankers’ pay as if it were a chess game distracts us from an even more important area of reform: to begin with, choosing the right people with whom to entrust our money. And that is a question of character more than anything else.

Alejo José G. Sison teaches Business Ethics at the University of Navarre and is President of the European Business Ethics Network (EBEN):

References:

Lucian A. Bebchuk, "Fixing Bankers’ Pay", The Economists’ Voice (www.bepress.com/ev), November 2009.

Steven N. Kaplan, "Should Banker Pay Be Regulated", The Economists’ Voice (www.bepress.com/ev), December 2009.

Tactics that would make a mafia loan shark blush

2010-01-10T05:11:00.001-08:00

Is the Fed Acting Behind the U.S. Stock Market Rally?

2010-01-08T13:29:00.000-08:00

http://www.nationmultimedia.com/2010/01/08/opinion/opinion_30119895.php

Is the Fed Acting Behind the U.S. Stock Market Rally?
Thanong Khanthong
The Nation
Fri, 08 Jan 2010

One of my good friends at Citibank recently sent me a story about Economics 101, or how the US government is managing the economy. Here it goes:

"It's a slow day in a little east Texas town. The sun is beating down, the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.

On this particular day, a rich tourist from the East Coast is driving through town. He stops at the motel and lays a US$100 bill on the desk, saying he wants to inspect the rooms upstairs in order to pick one to spend the night.

As soon as the man walks upstairs, the owner grabs the bill and runs next door to pay his debt to the butcher. The butcher takes the $100 and runs down the street to retire his debt to the pig farmer. The pig farmer takes the $100 and heads off to pay his bill at the supplier of feed and fuel. The guy at the farmers' co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her services on credit.

The hooker rushes to the hotel and pays off her room bill to the hotel owner. The hotel proprietor then places the $100 back on the counter so the rich traveler will not suspect anything.

At that moment, the traveler comes down the stairs, picks up the $100 bill, states that the rooms are not satisfactory, pockets the money, and leaves town.

No one produced anything. No one earned anything. However, the whole town is now out of debt and now looks to the future with a lot more optimism. And that, ladies and gentlemen, is how governments are conducting business today."

This story is cynical, but it really hits the point. After the economic bubble burst, the US government is now scrambling to clean up the mess. The US Federal Reserve has already committed $8.2 trillion to bail out the financial system, as well as corporate debts. The US's annual gross domestic product is about $14.2 trillion.

Sprott Asset Management, a Toronto-based hedge fund, has recently cast doubt that the US government is coming clean on its bail-out. In fiscal year 2009, the US added another $1.88 trillion to its public debt, which had to be financed by the US Treasury issuing securities. The foreign and international buyers purchased $697.5 billion of US treasuries; the Federal Reserve, which is pursuing an aggressive money printing policy, $286 billion; and the household sector $704 billion.

But Sprott Asset suspects that something fishy is going on. For the household sector was loosely defined, and it does not seem that any parties, under the current economic conditions, have $704 billion to buy into US treasuries. It concluded that the real buyer behind the household sector was none other than the US Federal Reserve itself.

If that were to be the case, the Fed would have already become the major financier of the US deficit to the tune of $1 trillion. Since next year the US deficit will reach more than $2.2 trillion, we can expect the Fed to continue printing money to finance the massive US overspending.

Charles Biderman, CEO of TrimTabs, also suspects that the US Federal Reserve is behind the stock market rally since March 2009 (see here) Ever since, US stocks have soared by more than $6 trillion.

Biderman went through the list of traditional players in the US stock market. He found that US corporations were net sellers of equities. US retail investor funds were hardly buying equities. US retail investors were also not buying equities directly in any significant amount. Foreign investors were net buyers of US stocks at around $109 billion between April and October 2009. Hedge funds posted net outflow of $12 billion from April to November 2009. Pension funds were not making asset allocations.

Then who is the buyer behind the US stock market rally? The money must come from somewhere.

Biderman pointed out that the US Treasury and US Fed have been bailing out US banks and corporations in a desperate attempt to save the US economy. So it will not come as a surprise that may also have entered the stock market to boost US equities.

"We want to emphasize that we have no evidence that the Fed or the Treasury are throwing money into the stock market, either directly or indirectly. But if they are not pumping up stock prices, then who is?" he wrote.

If this is the case, then the whole US market is now rigged, with the Fed bailing out everything from banks, corporations, US Treasuries and US stocks.

The US Federal Reserve is not subject to any independent audit. So nobody is in a position to know its exact balance sheet. For now, the Fed has made some Americans happy, but the question is, what's next?

Is Obama a captive of America's most powerful banks and corporations?

2010-01-08T12:03:00.001-08:00

http://www.opednews.com/articles/Is-Obama-a-captive-of-Amer-by-Richard-Clark-100106-101.html

January 7, 2010
Is Obama a captive of America's most powerful banks and corporations?
By Richard Clark

Candidate Obama repeatedly blasted Phil Gramm and the Gramm-Leach-Bliley Act, which Gramm had pushed through Congress with President Bill Clinton's support. This was legislation that repealed the Glass-Steagall Act
http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act
and thereby radically deregulated the financial industry, allowing hundreds of billions of new profits to be made by Wall Street, at great cost to the American public.

But now John McCain and Sen. Maria Cantwell, D-Wash. have sponsored a bill to repeal Gramm's bank-friendly legislation, while captive Obama seeks to preserve it!

The Gramm legislation, which permitted the merger of investment and commercial banks into too-big-to-fail corporations (including Citigroup and AIG, two financial giants that had to be bailed out by taxpayers), was thought by Obama the candidate to be a key cause of the meltdown. But as president, Obama's views did a "180" turnabout and he reappointed the Clinton-era officials who had sided with Gramm in ending sensible banking regulations that had protected the American public from predatory capitalism for 70 years.

Rather than restore Glass-Steagall, the Obama-backed banking regulation bill (which was passed last month by the Democratic majority in the House) went along with the desire of Wall Street lobbyists to a) prevent the breakup of the big conglomerates and b) block any control of their massive trading in the derivatives that has proved to be so toxic.

The result, with some deceptive reformist window dressing, is a pro-Wall Street business-as-usual cop-out, and the Senate version is likely to be more of the same.

Fortunately, there is a better way, and thanks to the McCain-Cantwell bill and a companion bill authored by Rep. Maurice Hinchey, D-N.Y. in the House, there is still a chance at serious financial regulation through the restoration of the key provisions of Glass-Steagall.

How odd that it now remains for John McCain to stand up to the oversized and overly powerful banks:

"I want to ensure that we never stick the American taxpayer with another $700 billion--or even larger--tab to bail out the financial industry," McCain proclaimed in introducing his legislation. "This country would be better served if we limit the activities of these financial institutions."

As we all know, just the opposite had happened under the great bailout: The big investment houses of Goldman Sachs and Morgan Stanley were allowed to suddenly attain the status of commercial banks in order to qualify for federal bailouts, and the once staid commercial Bank of America was encouraged by the Fed to buy out the investment house Merrill Lynch. As a result, banking has never before been concentrated in so few hands. As Rep. Hinchey put it:

"Today, just four huge financial institutions hold half the mortgages in America, issue nearly two-thirds of credit cards, and control about 40% of all bank deposits in the U.S. In addition, the face value of over-the-counter derivatives at commercial banks has grown to $290 trillion, 95% of which are held at just five financial institutions. We cannot allow the security of the American economy to rest in the hands of so few institutions."

Those derivatives, that hodgepodge collection of securitized debt--including mortgages of most American homes--are at the heart of the problem, and they are not regulated in any significant way by the legislation supported by the Obama administration. And that's not surprising, since Larry Summers, the president's top economic adviser, was not only a key proponent of reversing Glass-Steagall in the Clinton White House, but also supported the Financial Services Modernization Act, passed a year later, which summarily exempted those suspect derivatives from any regulation.

Although Obama has blasted "fat cat bankers on Wall Street," it's time for those who elected him to ask for more than rhetoric -- and to ask that of the Democratic leaders of the House, who refused to allow a vote on Hinchey's amendment to include the restoration of Glass-Steagall in their so-called Wall Street Reform Act.

Forced to introduce it as a separate bill, Hinchey decided to reveal the bald truth:

"The repeal of the Glass-Steagall Act was done to help large banks become enormous and to line the pockets of banking executives with more money than most Americans could ever dream of earning in their lifetime. My bill would help right the ship and return our country to the days when banks either participated in commercial lending activities or investment activities, but not both."

There are very good and rather obvious reasons for preventing commercial banks (which, insanely, are now allowed to carry the hard-earned savings of depositors and a federal guarantee of their worth) from engaging in the high-roller risk-taking of investment banks.

If even John McCain now understands this, one must ask why doesn't President Obama? The answer is that Obama is essentially a captive of the large financial institutions that can easily destroy his bid for a second term in the White House if he doesn't comply with their wishes.

Source of the information in this report:

http://www.truthdig.com/report/item/mccain_gets_it_obama_doesnt_20100106/

Bubbles and the Banks

2010-01-08T12:01:00.001-08:00

http://www.nytimes.com/2010/01/08/opinion/08krugman.html

January 8, 2010
OP-ED COLUMNIST
Bubbles and the Banks
By PAUL KRUGMAN

Health care reform is almost (knock on wood) a done deal. Next up: fixing the financial system. I’ll be writing a lot about financial reform in the weeks ahead. Let me begin by asking a basic question: What should reformers try to accomplish?

A lot of the public debate has been about protecting borrowers. Indeed, a new Consumer Financial Protection Agency to help stop deceptive lending practices is a very good idea. And better consumer protection might have limited the overall size of the housing bubble.

But consumer protection, while it might have blocked many subprime loans, wouldn’t have prevented the sharply rising rate of delinquency on conventional, plain-vanilla mortgages. And it certainly wouldn’t have prevented the monstrous boom and bust in commercial real estate.

Reform, in other words, probably can’t prevent either bad loans or bubbles. But it can do a great deal to ensure that bubbles don’t collapse the financial system when they burst.

Bear in mind that the implosion of the 1990s stock bubble, while nasty — households took a $5 trillion hit — didn’t provoke a financial crisis. So what was different about the housing bubble that followed?

The short answer is that while the stock bubble created a lot of risk, that risk was fairly widely diffused across the economy. By contrast, the risks created by the housing bubble were strongly concentrated in the financial sector. As a result, the collapse of the housing bubble threatened to bring down the nation’s banks. And banks play a special role in the economy. If they can’t function, the wheels of commerce as a whole grind to a halt.

Why did the bankers take on so much risk? Because it was in their self-interest to do so. By increasing leverage — that is, by making risky investments with borrowed money — banks could increase their short-term profits. And these short-term profits, in turn, were reflected in immense personal bonuses. If the concentration of risk in the banking sector increased the danger of a systemwide financial crisis, well, that wasn’t the bankers’ problem.

Of course, that conflict of interest is the reason we have bank regulation. But in the years before the crisis, the rules were relaxed — and, even more important, regulators failed to expand the rules to cover the growing “shadow” banking system, consisting of institutions like Lehman Brothers that performed banklike functions even though they didn’t offer conventional bank deposits.

The result was a financial industry that was hugely profitable as long as housing prices were going up — finance accounted for more than a third of total U.S. profits as the bubble was inflating — but was brought to the edge of collapse once the bubble burst. It took government aid on an immense scale, and the promise of even more aid if needed, to pull the industry back from the brink.

And here’s the thing: Since that aid came with few strings — in particular, no major banks were nationalized even though some clearly wouldn’t have survived without government help — there’s every incentive for bankers to engage in a repeat performance. After all, it’s now clear that they’re living in a heads-they-win, tails-taxpayers-lose world.

The test for reform, then, is whether it reduces bankers’ incentives and ability to concentrate risk going forward.

Transparency is part of the answer. Before the crisis, hardly anyone realized just how much risk the banks were taking on. More disclosure, especially with regard to complex financial derivatives, would clearly help.

Beyond that, an important aspect of reform should be new rules limiting bank leverage. I’ll be delving into proposed legislation in future columns, but here’s what I can say about the financial reform bill the House passed — with zero Republican votes — last month: Its limits on leverage look O.K. Not great, but O.K. It would, however, be all too easy for those rules to get weakened to the point where they wouldn’t do the job. A few tweaks in the fine print and banks would be free to play the same game all over again.

And reform really should take on the financial industry’s compensation practices. If Congress can’t legislate away the financial rewards for excessive risk-taking, it can at least try to tax them.

Let me conclude with a political note. The main reason for reform is to serve the nation. If we don’t get major financial reform now, we’re laying the foundations for the next crisis. But there are also political reasons to act.

For there’s a populist rage building in this country, and President Obama’s kid-gloves treatment of the bankers has put Democrats on the wrong side of this rage. If Congressional Democrats don’t take a tough line with the banks in the months ahead, they will pay a big price in November.

McCain, Cantwell sponsor bank bill

2010-01-08T11:55:00.000-08:00

http://www.thegarlandgroup.net/2009/12/18/nation-world-mccain-cantwell-sponsor-bank-bill-seattle-times-newspaper-4/

By The Associated Press and Bloomberg News

WASHINGTON — Two senators, including Washington state Democrat Maria Cantwell, have called for breaking up large financial firms that perform both commercial and investment banking, adding a wrinkle to already difficult Senate talks on how to regulate Wall Street.

Cantwell and Sen. John McCain, R-Ariz., on Wednesday introduced legislation that would bar commercial banks from undertaking brokerage activities. Democrats introduced a similar bill in the House.

Such a ban, a reinstatement of the Depression-era Glass-Steagall Act, which was repealed a decade ago, would strike directly at such institutions as Goldman Sachs, JPMorgan Chase, Citigroup, Bank of America and Wells Fargo, which engage in both commercial and investment banking.

"Banks need to be lending to small businesses and homeowners, not fueling risky Wall Street investment schemes," McCain said. "We must return stability, security and confidence to commercial banking for the American public."

Under the Senate legislation, financial firms operating commercial banks and investment houses would have to decide whether to focus on commercial banking or investment banking. Commercial banks would be banned from engaging in insurance activities.

A former bank regulator quickly criticized the proposal.

"Trying to split them up is crazy," said John Douglas, a former Federal Deposit Insurance Corp. general counsel who leads the bank regulatory practice at Davis Polk & Wardwell in New York. "The integration of the securities and banking function came about because of the need of large corporate customers to have integrated banking and securities services."

Cantwell, however, noted that Wall Street firms are poised to post soaring end-of-year profits and bonuses, while Main Street continues to suffer.

The president of the Independent Community Bankers of America said a growing realization has emerged in Congress the repeal may have been a mistake.

"We cruise along for 80 years without a major calamity infecting the entire financial system, and then less than eight years after the repeal of Glass-Steagall we have a financial meltdown in this country," said Camden Fine, president of the Washington, D.C.-based trade group for about 5,000 smaller U.S. banks. "That's no accident."

Rep. Maurice Hinchey, D-N.Y., introduced a version of the bill a day after House Majority Leader Steny Hoyer told reporters that renewal of Glass-Steagall is under discussion.

The House last week passed a bill that would overhaul U.S. financial rules in response to last year's $700 billion taxpayer-funded bank bailout and in an effort to prevent future crises. The legislation included government authority to break apart large, healthy firms whose size threatens the economy and to seize and unwind failed companies whose collapse in bankruptcy could disrupt the financial system.

In the Senate, members of the Banking Committee are crafting similar legislation, incorporating ideas proposed in June by President Obama. Cantwell said she and McCain will try to advance their legislation even if it's not incorporated into the Senate financial overhaul bill.

N.Y. Fed Told AIG to Shield Payouts

2010-01-08T11:53:00.000-08:00

http://online.wsj.com/article/SB10001424052748704130904574644542588515508.html?mod=rss_Today's_Most_Popular

JANUARY 8, 2010
N.Y. Fed Told AIG to Shield Payouts
By SERENA NG and MICHAEL R. CRITTENDEN

The Federal Reserve Bank of New York told American International Group Inc. not to disclose key details of their agreements to make big payouts to banks in the insurer's regulatory filings in late 2008, according to a set of email exchanges released Thursday.

AIG later amended its regulatory filings several times over the following months and provided the information after the Securities and Exchange Commission requested more disclosure. Congress also pressured the insurer to release the names of banks that were paid off in full on $62 billion in bets on soured mortgage securities. The biggest payouts went to French bank Société Générale and to Wall Street firm Goldman Sachs Group Inc., AIG finally said publicly in mid-March 2009.

The government's handling of the AIG bailout continues to draw scrutiny and has created political difficulty for Treasury Secretary Timothy Geithner, who was president of the New York Fed when it first bailed out AIG in September 2008. He played a key role in the regional Fed bank's controversial November 2008 decision to make U.S. and European banks whole on their mortgage gambles with AIG, according to a government audit last year.

But a Treasury spokeswoman said Mr. Geithner wasn't involved in AIG's disclosure decisions, even though discussions about them took place in late November 2008, when he was selected as treasury secretary by President Obama. Mr. Geithner "played no role in these decisions and indeed, by Nov. 24, he was recused from working on issues involving specific companies, including AIG," the spokeswoman said.

"There was no effort to mislead the public," said Thomas Baxter, general counsel of the New York Fed, on Thursday. He said it was "appropriate" for the institution to comment on AIG's disclosures on transactions involving the New York Fed, "with the understanding that the final decision rested with AIG and its external securities counsel."

"Our focus was on ensuring accuracy and protecting the taxpayers' interests during a time of severe economic distress," Mr. Baxter said. Amid the financial crisis in late 2008, the Fed was reluctant to have AIG's trading partners identified because it feared such information would discourage other firms from doing business with the insurer and spark worries about the banks themselves.

An AIG spokesman declined to comment on the issue.

Copies of email exchanges from late November 2008 to March 2009 between lawyers representing AIG and the New York Fed were released by Rep. Darrell Issa (R., Calif.), ranking minority member of the House Committee on Oversight and Government Reform.

The emails show lawyers discussing what to disclose in AIG's December SEC filings about agreements the New York Fed and AIG's financial-products division struck to make banks whole on credit-default swap contracts they had purchased from AIG.

In a Nov. 25 email, Peter Bazos, an attorney at law firm Davis Polk & Wardwell, which represents the New York Fed, wrote that certain agreements "do not need to be filed." One agreement contained the names of banks that received payouts from AIG. A Davis Polk spokesman declined to comment.

In response, an AIG in-house lawyer, Kathleen Shannon, said the company and its law firm Sullivan & Cromwell "believe that the better practice and better disclosure in this complex area is to file the agreements." She also wrote that staff at the SEC "would not be particularly happy with a decision to withhold the documents at this time."

Subsequent email exchanges in December 2008 showed extensive editing that lawyers for the New York Fed made to an AIG draft filing and press release. When AIG released its 8-K filing on Dec 24, it made mention of a list of its derivative transactions, but a schedule supposed to contain them was left blank.

Six days later, on Dec 30, the SEC sent a letter to Edward Liddy, AIG's CEO at the time, requesting revisions to the filing and more information about the agreement, including the list of derivative transactions. In mid- January 2009, AIG amended its filing and submitted the list of deals to the SEC, but its public filings didn't include the list, saying that "confidential treatment has been requested for the omitted portions."

In early March, Federal Reserve vice chairman Donald Kohn told a congressional hearing he couldn't reveal the names of AIG's counterparties or how much was paid to each of them, saying that information "would undermine the stability of the company and could have serious knock-on effects to the rest of the financial markets and the government's efforts to stabilize them."

Days after the hearing, AIG released the names of its counterparties, listing 16 banks that had received a total of $62.1 billion in payments as part of agreements to tear up their derivative contracts with the insurer.

Mr. Geithner has become a convenient target for lawmakers angered by how top officials went about bailing out the financial system. At a series of increasingly contentious hearings on Capitol Hill, Mr. Geithner was taken to task for events and actions that occurred both during and after his time at the New York Fed, from issues such as bonuses paid to AIG executives and the failure to negotiate aggressively with the insurer's counterparties.

Treasury spokeswoman Meg Reilly said what has been overshadowed is the fact that the government expects to be repaid in full, with interest, on the money it provided to buy the AIG-linked securities.

"Somehow that fact that the government's loan is 'above water' gets lost in all the consternation," Ms. Reilly said. The outstanding loan balance stood at $18.6 billion at the end of December, while the fair market value of the securities portfolio was $22.6 billion, according to Treasury figures.