BOOKS / Danny Schechter : Villains Galore! A Bankster Dozen

Bankster graphic from ANU News.
Villains galore!
Good holiday reads about
the great economic crisis

By Danny Schechter / The Rag Blog / December 4, 2010

Back in 2007, just as the markets began their meltdown, I started writing a book I called Plunder to investigate the then emerging economic calamity. I had a well-known agent representing me, and, at that time, had published 10 books. My agent warned me that I was ahead of the curve but agreed that the subject couldn’t be timelier.

Before we were through, the manuscript went to and was returned by 30 publishers. I was told that there is only one person that a book like mine had to pass muster with, not an economist, not a book editor -- but the book buyer who handles business books for Barnes and Noble. If she/she didn’t like it, forget it. (This was before the bottom dropped out of that company that was later nearly sold.)

So much for their business savvy. I guess Plunder was too much of an anti-business book for them then.

At that point, they were looking for “How to Get Rich” books and volumes with investment advice. Since I was not offering either, my warnings of the collapse ahead were off-message. No sale. Finally, a small press, Cosimo Books put it out. Sadly, with no real advertising budget or retail support, it wasn’t going to go anywhere. It was on the money in one sense -- published just before Lehman Brothers went down.

Since then, as the crisis was acknowledged and legitimated, the subject was finally validated for the publishing world, perhaps as millions of people began asking, "What the F…? What the hell happened?"

To answer that question, a mighty stream of crisis books was commissioned and soon poured forth. Every publisher wanted one. Some authors blamed psychological factors. Others were technical to a fault and unreadable. Still, others trashed borrowers who bought homes they couldn’t afford. Many framed the problem in terms of Wall Street mistakes and miscalculations, and occasionally greed.

Wrote Satyajit Das, author of Traders, Guns & Money: “The number of books on the Global Financial Crisis (GFC) has reached pandemic proportions -- the World Health Organization (WHO) is investigating. With the decorum of vultures at a carcass, publishers are cashing in on the transitory interest of the masses (normally obsessed with war, scandal or reality TV shows) in the arcane minutiae of financial matters.”

Few indicted the system; fewer still focused on intentionality -- crime in the suites, the subject I explore in my film Plunder: The Crime Of Our Time and the more detailed companion book The Crime of Our Time (Disinfo).

In the meantime, I tried to keep up with the hype and a flow that is still flowing.

Here are 12 books worth reading:

1. The Pecora Investigation: Stock Exchange Practices and The Causes of the 1929 Stock Market Crash. This is the just reissued actual text of the U.S. Senate Committee on Banking and Currency in the days before the Congress was bought and sold. Pecora had said “Legal chicanery and pitch darkness were the banker’s stoutest allies.”
   
   So far, in today’s crisis, there has been only ONE real Senate hearing, by Senator Levin questioning ONE deal by Goldman Sachs who denied everything until the bank reached a $550 MILLION settlement without admitting any wrongdoing. Clearly we still need a new Pecora-like investigation, not a tepid Congressional inquiry commission


2. Matt Taibbi: Griftopia: Bubble Machines, Vampire Squids and the Long Con that is Breaking America (Spiegel & Grau). As Rolling Stone readers know, Matt is a bold reporter and brilliant stylist turning his rage into brilliant prose and giving no mercy to the Goldman Sachs gang.


3. Nomi Prims: It Takes A Pillage: Behind the Bailouts, Bonuses and Backroom Deals from Washington to Wall Street. An elegant writer, Nomi knows the financial world up close because she’s "been there and done that" with high paying stints at Bear Stearns and Goldman Sachs. You can see her brilliance in my film, Plunder. Her book goes much deeper.


4. Les Leopold: The Looting of America: How Wall Street’s Game of Fantasy Finance Destroyed Our Jobs, Pensions and Prosperity -- and What We Can Do About It (Chelsea Green). Les is a passionate and compelling writer, teacher and activist. He has been steeped in union politics and knows how to fuse analysis and agitation


5. Joseph E. Stiglitz: Free Fall: America, Free Markets, and the Sinking of the Global Economy (Norton). Siglitz is the economist’s economist, a Nobel Prize Winner, an insider turned fierce critic of our economic crisis. He has the credentials and THE critique and a much needed global perspective.


6. Howard Davies: The Financial Crisis: Who is to Blame? (Polity). I picked this book up at my alma mater, the London School of Economics, which Davies now directs. This is straight down the middle without dismissing more radical insights. He even references my critique of media complicity.


7. Randall Lane: The Zeroes: My Misadventures in the Decade Wall Street Went Insane. A colorful personal account by a gonzo editor who covered the madness for Wall Street pubs. Sample: “Historically, Wall Street has been like one giant extended High School (A boy’s High School). The jocks become trader -- large, aggressive men who succeed in the pits based on heft and testosterone. The nerds went into banking, crunching numbers and pumping out spread sheets to determine the efficacy of deals.”



8. Yves Smith: ECONned: How Unenlightened Self Interest Undermined Democracy, and Corrupted Capitalism (Palgrave Macmillan). Yves is a rock star in the business of critical economics. A financial industry professional, she defected to the “light side” and founded the must read website, NakedCapitalism.com. This book skewers government policy, the economics “profession” and Wall Street fraudsters.


9. Steig Larsson: The Millennium Trilogy. The late Swedish journalist, turned popular writer, has produced three volumes of best-selling action thrillers with intelligent plots. I cite his work here because he and the character he created, Mikael Blomkvist, were investigative reporters in the financial realm.
   
   Larsson describes Blomkvist’s contempt for his fellow financial journalists based on morality: “His contempt for his fellow financial journalists was based on something that in his opinion was as plain as morality. The equation was simple. A bank director who blows millions on foolhardy speculations should not keep his job. A managing director who plays shell company games should do time.
   
   “The job of the financial journalist was to examine the sharks who created interest crises and speculated away the savings of small investors, to scrutinise company boards with the same merciless zeal with which political reporters pursue the tiniest steps out of line of ministers and members of Parliament.”
   
   His books are more than storytelling. They are also a cry for more truth in media.


10. And, since I try to practice the investigative protocols of journalism in this sphere, may I call your attention to the republication of one of the greatest American classics of taking on corporate power?
    
    Ida M. Tarbell may be gone but her work is not forgotten, especially her classic, two volume blistering The History of the Standard Oil Company. I was privileged to write the introduction for the Cosimo edition. She wrote this muckraking blockbuster in 1904 and remains relevant, and an example of the best of us.


11. For a left critique, try Michael Chossudovsky and Andrew Gayin Marshall, Editors: The Global Economic Crisis: The Great Depression of the XXI Century (Global Research) from the Canadian-based global web site I contribute to.


12. Barry James Dyke: The Pirates of Manhattan: Systematically Plundering The American Consumer and How To protect Yourself Against It. The one financial book I saw “blurbed” by Jay Leno (Self-published).

So, this is my “cheaper by the dozen” for 2010. I am sure I have overlooked some great work so it is hardly the “end-all” and “be-all.” Many of the new financial books out there are written by journalists for leading newspapers and magazines, as well as mainstream economists, many of whom missed the crisis when they might have warned us about it.

And, while many of us wait for the promised Wikileaks take down of a major bank, many authors and journalists still fail to tackle the really essential issues.

Hopefully, some of the books I am recommending will fill some gaps in your knowledge.

["News Dissector" Danny Schechter is a journalist, author, Emmy award winning television producer, and independent filmmaker. Schechter directed Plunder: The Crime of Our Time, and a companion book, The Crime of Our Time: Why Wall Street Is Not Too Big to Jail. Contact him at dissector@mediachannel.org.]

Listen to Thorne Dreyer's Sept. 28 interview with journalist and filmmaker Danny Schechter on Rag Radio here. To find all shows on the Rag Radio archives, go here.

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Danny Schechter : Time to Jail the Banksters

Parade of the banksters. Cartoon by Jim Conte.
Time to act:
A campaign to jail the financial fraudsters

By Danny Schechter / The Rag Blog / November 11, 2010

“I’ll have the Chateau Mouton-Rothschild from 1982,” a Wall Street investment banker recently told his waiter at the latest and greatest shi-shi restaurant in Greenwich Village.

“Yes sir, but I want you to know, the cost is $3,950.”

“No Problem.”

(As reported in The New York Times.)

And so it goes at The Lion, where no extravagance is too costly for today’s banksters and Lion Kings.

The men they call the "big swinging dicks" are back. In the words of The New York Times, Wall Street is getting its “groove back,” as the banksters anticipate their latest round of bonuses while gloating about how their strategic and undisclosed campaign donations assured that the overdue regulations they fear will be put on hold.

For them, buying the 2010 election was a small price to pay. Read economist James Galbraith’s column about how they did it.

Oh, happy day.

Meanwhile the rest of us cling to our “jobless recovery” while the prospect of inflation engineered by the Federal Reserve Bank threatens what purchasing power we have.

Increasingly, economists in the know are saying that unless financial fraud is prosecuted, there can be no recovery, as Washington’s Blog reports:

As economists such as William Black and James Galbraith have repeatedly said, we cannot solve the economic crisis unless we throw the criminals who committed fraud in jail.

And Nobel prize winning economist George Akerlof has demonstrated that failure to punish white collar criminals -- and instead bailing them out -- creates incentives for more economic crimes and further destruction of the economy in the future.

Nobel prize winning economist Joseph Stiglitz just agreed. As Stiglitz told Daily Finance on October 20th:

"The legal system is supposed to be the codification of our norms and beliefs, things that we need to make our system work. If the legal system is seen as exploitative, then confidence in our whole system starts eroding. And that's really the problem that's going on."

OUR RESPONSE: We don’t need more bailouts. We need a jailout.

Support the JAILOUT Economic Justice Campaign by signing the petition at New Dissector.

We need laws enforced, not winked at with financial settlements that allow those who enriched themselves at our expense, and destroyed the lives of so many, to get off scot-free, often with obscene bonuses and promotions.

Now, it is time for all of us to speak out and demand that something is done to stop foreclosures and create jobs.

We can start with a petition to the President, Attorney General, and political, labor, and youth leaders, not in the bag to Wall Street. We can call on the media to do more to cover this story instead of blaming the victims for the crime.

We are saying: ENOUGH IS ENOUGH

1. Investigate fraudsters and financial criminals.
2. Indict those responsible.
3. Prosecute using RICO laws that target criminal enterprises spawned by three industries working together: finance, insurance and real estate.
4. Incarcerate the guilty.

All of this has been done before. More than 1,500 bankers went to jail after the S&L crisis.

Why not today?

We demand a criminal investigation.

We demand to see the guilty parties indicted. Their illegal gains should be seized and distributed to their victims.

We demand the federal and state governments prosecute these crimes, using RICO laws when possible, not cut deals that allow these crooks to walk free.

We want a national moratorium on foreclosures until all the shady legal issues are sorted out — and not just by the banks

We want our government to be on our side, to stand up for Main Street, not Wall Street.

If you committed these crimes, you would be doing time.

So should they!

Go here to learn more about this effort and to sign the petition.

["News Dissector" Danny Schechter is a journalist, author, Emmy award winning television producer, and independent filmmaker who also writes, blogs, and speaks about media issues. Schechter directed Plunder: The Crime of Our Time, and a companion book, The Crime of Our Time: Why Wall Street Is Not Too Big to Jail. Contact him at dissector@mediachannel.org.]

Listen to Thorne Dreyer's Sept. 28 interview with journalist and filmmaker Danny Schechter on Rag Radio here. To find all shows on the Rag Radio archives, go here.

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Republicans : Choosing Wall Street Over Main Street

Graphic from USA Today.
The Republicans and financial regulation:
Choosing Wall Street over Main Street

By Ted McLaughlin / The Rag Blog / April 22, 2010

It's no secret to anyone what kicked off the current recession in America. It was the financial industry and Wall Street that were so greedy that they were willing to throw the entire country under the bus as long as they could keep making their fees and bonuses. They were so concerned with making their own money they even put their own companies at risk to make a fast buck.

Of course, this couldn't go on forever. Wall Street had convinced Americans that rules were in place that would prevent a financial meltdown like what happened in 1929 and led to the Great Depression. To hear them talk, land and housing values would keep rising forever, the stock market could not bottom out and lose billions of dollars, and the financial industry was too big and smart to fail. None of that was true.

Their greed finally caught up with them. Some companies folded (like Lehman Bros.) and others would have folded if they hadn't been bailed out by Republican President George Bush creating a $700 billion bailout to keep them afloat. This huge failure by Wall Street banks, brokerages and insurance companies led us into the worst recession since the 1930s. Over 12 million jobs were lost and the economy's failure was felt in every state and city throughout the country.

After the $700 billion of taxpayer money was pumped into Wall Street, they are now back to their old ways. The stock market is going up, outrageous salaries and bonuses are being paid to the executives, and we are probably well on our way to another financial meltdown in the future because nothing has been changed. And that seems to be the way Wall Street wants it, because they're pumping over a million dollars a day into lobbying against any changes or new regulations.

But the American people know better. They know that changes on Wall Street must be made and the financial industry must be more closely regulated, because they have shown that they are clearly incapable of controlling their own greed or policing their own industry. This is even true of the teabaggers. While it is true that they are unhappy with government, they are equally unhappy with Wall Street and unhappy that while the financial companies have recovered, ordinary Americans are still mired in the recession.

That's why I am so puzzled that congressional Republicans are now siding with Wall Street against the ordinary citizens on Main Street. President Obama is trying to get some new regulations passed to rein in some of the most egregious abuses on Wall Street. I think he should do even more than he is proposing, but his proposals will make a good start and bring at least a modicum of sanity back to Wall Street.

But the president may be unable to get his new financial regulations through Congress. This is because the Republicans have decided they are against any reform of Wall Street. That should tell any observer where most of that lobbyist money is going.

Senator Chris Dodd (D-Connecticut) is chairman of the Senate Banking Committee and one of those pushing for new regulations on the financial industry. However, he has received a letter from the Senate Minority Leader (who receives more funds from Wall Street than any other senator) telling him that the Republicans have 41 votes to oppose regulating the financial industry. In fact, he claims they can even prevent Democrats from debating financial reform.

I think the Republicans, while they may be filling their campaign coffers off of Wall Street, are making a big mistake. They are underestimating the rage that the average American feels toward Wall Street and the financial giants. Maybe they think the next election will be fought over health care reform, and they can keep the public's mind off of Wall Street and our jobless economy caused by Wall Street. They are wrong.

The health care reform is old news, and the more people learn about it, the more they will like it -- or at least accept it. The next election will be fought over the economy, and the bill that will be freshest in the minds of voters will be the effort to regulate Wall Street and rein in some of their greed. They are not going to be happy with the protectors of Wall Street.

I think the Republicans are giving the Democrats a great campaign issue. I hope the Republicans continue their efforts to protect Wall Street greed, because it gives Democrats an issue to pound them on. Democrats should repeat over and over again that it is the Republican Party that opposes financial reform. They should make it clear that the Republicans are the ones blocking help for ordinary Americans and acting to protect the rich Wall Street corporations. The issue for Democrats should be simple:

THE REPUBLICANS HAVE CHOSEN WALL STREET OVER MAIN STREET!!!

[Rag Blog contributor Ted McLaughlin also posts at jobsanger.]

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Fixing the Economy? Like Filling a Leaky Bucket

"Old tin bucket." Photo by {JO} / Flickr.
Bucket's got a hole in it:
Can we revive the U.S. economy?

By Roger Baker / The Rag Blog / December 13, 2009

Is trying to fix the U.S. economy like trying to fill a leaky bucket? So it seems. The money the U.S. government is printing is not getting down to the grassroots to create jobs. The lack of liquidity and credit is creating a deflationary spiral, a self-perpetuating economic contraction.

The financial tools being used to revive the domestic economy are having little effect. The main tools being tried are the Keynesian stimulus aimed at creating domestic jobs; the guaranteeing of existing commitments like bad home loans and social security; and the very low prime rate accessible to major bank lenders for both domestic and international loans.

Keynesian stimulation is primarily a domestic stimulus effort, a policy which by itself and used alone on a large scale could be quite effective in doing things that need to be done. However, the Congressional Republicans are trying to block more stimulus at a time when much more is needed to stop the deflationary spiral. Here is how Nobel prize winning economist Joseph Stiglitz sees the current situation:

Nobel Prize-winning economist Joseph Stiglitz urged U.S. lawmakers to use “overwhelming force” to cut a 10 percent unemployment rate that is forecast to rise...“Unless action is taken, we risk facing a vicious cycle: unemployment contributing to a weak economy, more mortgage foreclosures, more bad debts, lower demand, and possibly more, but certainly not less, unemployment.” Stiglitz said priorities for spending should include extending unemployment benefits, aiding states facing revenue shortfalls, giving tax credits for weatherizing homes, government jobs programs and research and technology initiatives...

The Keynesian stimulus package is at the same time dwarfed by a much bigger pot of money: the global finance system, largely managed by the bankers who got us into trouble. Here is what Stiglitz goes on to say about that:

...Stiglitz, 66, also said the Federal Reserve contributed to the financial crisis by failing to supervise banks or stem the housing bubble. He questioned proposals to give the central bank more authority to supervise firms whose failure might threaten the financial system. “Giving more power to an institution which has failed so miserably, with results that have imposed such costs on all of us, cannot be the right solution unless there are deep and fundamental reforms in the institution, of a kind that are beyond those currently being discussed,” he said.

In other words, the net effect of the amount of Keynesian stimulus we are likely to get is unlikely to do much good if we are not also reforming the banking system. All the money the U.S. government obligates should be pulling in the same direction. At least the immediate prospects for deep reform of the financial system are not good. Matt Taibbi, who just wrote a devastating critique in Rolling Stone titled "Obama's Big Sellout,” documents the incestuous relationships between the bankers and their government regulators, who are now increasingly associated with the Obama administration.

Why aren’t the bank failures being followed by reform, with bank nationalization as an option? The problem is more one of politics than of economics. The U.S. government through its bailout policies is in real control of the banks through our legal system. This Atlantic article explains the same situation from a slightly different perspective.

And here's an overview of the economic situation by an IMF banker. It explains how the U.S. adopted a system of political control by the banking oligarchs; the U.S. is beginning to resemble a third world country in its pattern of entrenched corruption. The thesis is that the current entrenched banker-ocracy will do anything to block reform. The bankers and their political allies are unwilling to step aside, thus blocking adoption of a rational economic cooperation policy based on the needs and desires of the vast majority of the public.

Why do we not take full charge of their management in the public interest? Do we want to keep pretending the banks are solvent using phony profits and non-transparent financing? Or do we have the courage to face reality, to declare the likely bankrupt banks like Citibank insolvent, and then get to the heart of fixing the problem with strict controls, much as prominent Keynesians like Krugman and Galbraith advocate?

The TARP bank bailouts greatly favored the banks while obligating future taxpayers to bear the burden, but there as little reform to benefit the taxpayers in return. The policy of cheap and easy Federal Reserve credit remains, with a prime lending rate down around zero percent. Bernanke says he is going to try to keep this going. Meanwhile, the U.S. government, the big investment banks, and the multinational corporations are first in line for low interest rate loans. This is the Wall Street Journal complaining about the situation:

The Federal Reserve implemented an emergency monetary policy after the 2008 Lehman bankruptcy to salvage the world financial system. In his testimony yesterday... Ben Bernanke said, 'We must be prepared to withdraw the extraordinary policy support in a smooth and timely way as markets and the economy recover.' This leaves all-out emergency monetary stimulus in place, but with a different, much weaker justification.

With the system stabilized, the Fed hopes that artificially low interest rates and its purchases of mortgage-backed securities [MBS] will spur growth. Instead they are pushing dollars abroad and wasting precious growth capital in asset and commodity bubbles... more than a year after the heart of the panic, the Fed is still promising near-zero interest rates for an extended period and buying over $3 billion per day of expensive mortgage securities... Capital is being rationed not on price but on availability and connections.

The government gets the most, foreigners second, Wall Street and big companies third, with not much left over. The irony of the zero-rate policy, coupled with Washington's preference for a weak dollar, is a glut of American capital in Asia (as corporations and investors shun the weakening U.S. currency) and a shortage at home... Much of its current stimulus is being diverted to commodities and foreign economies - hence Asia's complaint about bubbles ... Wall Street will threaten a tantrum if the Fed even thinks about damping the air-raid sirens. The Street utterly loves the Fed's largess ...

Under current unreformed and unregulated conditions, no matter how much cheap low interest rate money is available for loaning out, the banks try to seek out their highest profit. Bankers are, after all, in business to make as much money as possible on their loans. A fast return, high profit loan by a bank is always going to win out over a slow return, low-profit-anticipated loan. This will be so until banking is made to change by externally imposed laws and regulations.

The consumer spending portion of the U.S. economy is continuing to deflate with no obvious recovery stage in sight. Consumers spend most of the total U.S. GNP on personal goods, but the high unemployment and consumer debt mean that there are few profitable domestic loan opportunities in the USA anymore, especially for small businesses catering to the consumer economy.

People are only buying what they really need and not much else. Contraction in this Main Street sector is indeed holding wage inflation down, but at a high social cost in what has become an increasingly service-based U.S. economy. Cheaper U.S labor, delivered through increasing poverty and wage competition, does not translate into more profitable bank loan opportunities so long as U.S. wages remain far above Chinese wages.

A new banking reform bill has just made its way through the House of Representatives. However, on close inspection it looks like token reform, falling far short of the reforms suggested above by Stiglitz. As one example, the bill calls for an audit of the Federal Reserve system, but not for another two years. Another mismatch stems from the fact that we live in a world of international banking. A world that needs international banking reform to coordinate the global economy properly, as Financial Times points out here. The U.S. doesn’t dominate the global economy any more, nor can we fix it on our own.

The leaky bucket

Back to the leaky bucket syndrome. Since the domestic economy is no longer a lucrative source of profit, bank loans are no longer attracted toward domestic investments that might create jobs and help restrain deflation. The opportunities for banks to make much profit on traditional domestic investments involving average people are rare.

Given this situation, we can see why making easy money available through the Federal Reserve is like trying to pour money into an old tin bucket. The theory is that the dollars circulate and stimulate additional general consumer demand, called the "multiplier effect.” The problem is that the money tends to head offshore. Not enough stays to revive domestic demand alongside the relatively insufficient Keynesian stimulus.

The easy money and stimulus the government creates is tending to leak outside of the country into foreign loans, equities and commodities. The guys managing private money watch the fed and the treasury extend credit to prop up all sorts of bad investments and government entitlements. They realize that the total accumulation of U.S. treasury debt is so large that it may never be paid back by the aging population of taxpayers. It looks like U.S. debt may have to use shrunken, devalued dollars as a likely alternative to government default.

The banking investment outlook is different with regard to bank investments in foreign debt, foreign equities, and commodities. The biggest U.S. banks often make loans to corporations that then use the money for profitable investments abroad. A lot of production in the U.S. biotech industry is now relocating to China, with the parent companies evolving into domestic sales outlets. Loans to such companies tend to stimulate foreign economies rather than the domestic economy.

If you buy commodities, you are often stimulating foreign mining and manufacture in the country of production; most commodities (where are we competitive except wheat soybeans, and Boeing airliners?) are largely produced outside the USA. We are now seeing broad price inflation of many commodities since about March 2009, with a rise of about 30-40% so far in just this year.

Those who see this handwriting on the wall are clearly buying metals and commodities which tend to preserve wealth, while dumping their dollars. The rising gold prices is a fundamental sign that people don’t trust dollars to hold their value, so they buy gold, which has always held its value and preserved wealth.

This is an obvious sign that the psychology of the rich guys who run the world is shifting away from the U.S. service economy, to favor the emerging economies of Asia, etc. There is now a global asset bubble that attracts speculative investments in commodities.

This applies to oil too. With annual global oil depletion of about 5%, and a production cushion of perhaps 5 million barrels a day of spare capacity (we have to guess the number), we are probably due for another economy-crippling oil price spike within just a few years. This will happen sooner if the global economy "recovers.” However oil dependence is so basic to the global economy that a tight market and another oil price spike probably cannot be delayed much in any case.

Hope for change?

Not facing reality with regard to the finance system and turning to printing money and phony bank profits could be extremely destructive before long, probably within the next few years. This will most likely be reflected in higher federal interest rates. Why not simply mandate that the banks that get government bailouts must do the stuff that really needs to get done, like setting up nationwide medical clinics, or cooperative community gardens, or homeless relief centers?

The public is now figuring out some of the right answers on its own. People say what they want when they are asked in the polls. The fact that the politicians, who determine how the banks are regulated, are resisting making these changes points to the heart of the problem.

Americans want their government to create jobs through spending on public works, investments in alternative energy or skills training for the jobless.

They also want the deficit to come down. And most are ready to hand the bill to the wealthy.

A Bloomberg National Poll conducted December 3-7 shows two- thirds of Americans favor taxing the rich to reduce the deficit.

Even though almost 9 of 10 respondents also say they believe the middle class will have to make financial sacrifices to achieve that goal, only a little more than one-fourth support an increase in taxes on the middle class. Fewer still back cuts in entitlement programs such as Social Security and Medicare or a new national consumption tax...

If this is what most of the public wants, why is bank nationalization not an option? The problem is more one of politics than of economics.

The government through its bailout policies is in real control of the banks, so why do we not take full charge of bank management in the public interest? Do we need to keep pretending that the banks are solvent or do we have the courage to face reality? Why not declare key banks insolvent, and get to the heart of fixing the problem through strict bank controls, much as prominent Keynesians like Krugman and Galbraith advocate?

If by some political miracle progressives had been put in charge of dealing with the U.S. economic crisis in mid 2008, what might they have done differently? Probably the initial acute part of the current crisis should have been treated with an injection of liquidity and deficit spending along Keynesian stimulus lines to prevent a chain reaction banking panic. This did happen. But there was little followup in terms of fixing the policies that caused the problem.

Given a U.S. political system polarized between two parties, and one in which political influence peddling and lobbying influence plays a large and ongoing role, the bankers have been able politically to resist banking reform. This is now widening into a deep and fundamental conflict between a wealthy oligarchy, with its power centered on finance, and the broad economic interests of the American public.

Why no trials for the most culpable bankers? If Citibank cannot survive without phony profits, why not nationalize it? Unreformed, poorly regulated banks too big to fail are probably a bigger threat than foreign terrorists. I think the proper smart solution is either to break up or to nationalize too-big-to-fail banks so the money gets spent on the low profit things we need in this country. This would send a sign that the public is in charge, and not the banker-ocracy that caused the problems.

If Karl Marx were still around as an observer, I think he would see this as the historically defining class struggle of our times. A conflict between the bankers and their private but destructive interests, in opposition to the public interest of the vast majority, both domestic and globally.

Call it what we will, there is a deep and fundamental problem that our current political institutions seem unable to resolve. This situation is unlikely to change. Not without broad public pressure and political organization generated by most of the 6 billion of us trying to survive in a world run by bankers; those taught to profit by trying to perpetuate infinite growth on our finite planet.

[Roger Baker is a long time transportation-oriented environmental activist, an amateur energy-oriented economist, an amateur scientist and science writer, and a founding member of and an advisor to the Association for the Study of Peak Oil-USA. He is active in the Green Party and the ACLU, and is a director of the Save Our Springs Association and the Save Barton Creek Association. Mostly he enjoys being an irreverent policy wonk and writing irreverent wonkish articles for The Rag Blog.]

Also see:

• Roger Baker: Can the Economy Recover? by Roger Baker / The Rag Blog / December 4, 2009
• Economy and Unemployment : Real Recovery a Long Shot by Roger Baker / The Rag Blog / December 6, 2009

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Freeland: Banking Goes Broadway

Pay Pals: Getting Big Bucks from Banks
By Bill Freeland / The Rag Blog / October 7, 2009

As MegaBank’s CFO, I’ve prepared the following guidelines for the upcoming meeting of the executive compensation committee.

(I say “upcoming” but, of course, I mean “long past.” It seems notice of this year’s meeting was once again sent late and as a result none of you were here. Don’t be concerned. It went off without a hitch. Simply sign below to confirm receipt of this back-dated mandatory communication.)

Item 1: Hello and Goodbye

First, let me welcome all of the newcomers -- which is to say, all of you. As you are aware, committee members are replaced annually to promote the bank’s goal of presenting policies that are always fresh -- at least to each of you.

The benefit in all of this is that there is little need for you to be concerned about details you’re likely to forget by the end of the meeting anyway. We apologize in advance if the new amenity we’ve added to the gathering creates a distraction. As I’m sure you know, access to an open bar during all the deliberations has recently become a widely accepted practice in our industry. What’s more, should you have any other needs that require attention (either here or in an adjoining room), feel free to consult the friendly companion who has been assigned to you for that purpose.

Item 2. Newly Strengthened Standards

In light of the recent financial crisis (or as we prefer to call it, “opportunity”), the time of business as usual is long past. Time was when hard work and political connections were all you needed to succeed in this business. Not anymore. Today we have a new partner: the federal government. As a result we are now free to move beyond merely rewarding success. In this new age we can concentrate exclusively on the rewards themselves.

Which means that the work of this committee can assume a sharply different focus. Having become really too big to fail also means we are now big enough to accept the rewards of this new status. Which is why this year’s bonus package, while it may appear exorbitant to others who have not achieved our level of systemic threat, we believe is simply too big to forego.

Item 3: Short-Term vs. Long Term Goals

If there is one thing this new realty has taught us it is that we need to focus more on long-term stability rather than short-term gain. This will require raising our sights above today’s quick profit and becoming more concerned with projecting earnings much further out. Say, a month or two -- at least. In this context, we hereby dedicate ourselves to the long-term goal of a minimum of two booms before every bust.

But this kind if discipline comes at a price. Which, of course, brings us again to the compensation committee. Long-term perspective merits long-term pay. Therefore, we will be proposing the industry’s first “better than life” lifetime pay. The checks keep coming as long as we (or our beneficiaries) keep cashing them.

Item 4. New Levels of Accountability

We have all grown up to respect the importance of the work ethic. In recent years that has meant the grinding demands of working from ten to four for a solid three days a week with only a two-hour break for lunch. But in this new age of bailouts and corporate consolidations, we call for a new definition of the term “work” itself. Who anymore really believes that this requires time actually spent at a desk. Or for that matter, even at the office.

No, work can now assume a new existential dimension. Now the new definition of “executive performance” can be inextricably joined to “executive existence” itself. We no longer merely do our jobs. We are our jobs. Recognizing this new reality, however, presents a unique challenge to the compensation committee.

Existence obviously requires a 24-hour commitment. And as a “24-hour executive,” our compensation must be similarly comprehensive. We exist around the clock. We should be paid around the clock. Seen from this perspective, executive pay that was once considered outrageous is now merely au currant.

And given what we’ve been through over these last months, that seems the least we can do for ourselves.

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Obama's Financial Reform: Just Plugging a Few Leaks Rather Than Repairing the Dam

US Treasury Secretary Tim Geithner told the Senate Banking Committee that he plans to reform the system of financial regulation. Photo: Bloomberg.
Only a Hint of Roosevelt in Financial Overhaul
By Joe Nocera / June 17, 2009

Three quarters of a century ago, President Franklin Roosevelt earned the undying enmity of Wall Street when he used his enormous popularity to push through a series of radical regulatory reforms that completely changed the norms of the financial industry.

Wall Street hated the reforms, of course, but Roosevelt didn’t care. Wall Street and the financial industry had engaged in practices they shouldn’t have, and had helped lead the country into the Great Depression. Those practices had to be stopped. To the president, that’s all that mattered.

On Wednesday, President Obama unveiled what he described as “a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression.”

In terms of the sheer number of proposals, outlined in an 88-page document the administration released on Tuesday, that is undoubtedly true. But in terms of the scope and breadth of the Obama plan — and more important, in terms of its overall effect on Wall Street’s modus operandi — it’s not even close to what Roosevelt accomplished during the Great Depression.

Rather, the Obama plan is little more than an attempt to stick some new regulatory fingers into a very leaky financial dam rather than rebuild the dam itself. Without question, the latter would be more difficult, more contentious and probably more expensive. But it would also have more lasting value.

On the surface, there was no area of the financial industry the plan didn’t touch. “I was impressed by the real estate it covered,” said Daniel Alpert, the managing partner of Westwood Capital. The president’s proposal addresses derivatives, mortgages, capital, and even, in the wake of the American International Group fiasco, insurance companies. Among other things, it would give new regulatory powers to the Federal Reserve, create a new agency to help protect consumers of financial products, and make derivative-trading more transparent. It would give the government the power to take over large bank holding companies or troubled investment banks — powers it doesn’t have now — and would force banks to hold onto some of the mortgage-backed securities they create and sell to investors.

But it’s what the plan doesn’t do that is most notable.

Take, for instance, the handful of banks that are “too big to fail”— and which, in some cases, the government has had to spend tens of billions of dollars propping up. In a recent speech in China, the former Federal Reserve chairman — and current Obama adviser — Paul Volcker called on the government to limit the functions of any financial institution, like the big banks, that will always be reliant on the taxpayer should they get into trouble. Why, for instance, should they be allowed to trade for their own account — reaping huge profits and bonuses if they succeed — if the government has to bail them out if they make big mistakes, Mr. Volcker asked.

Many experts, even at the Federal Reserve, think that the country should not allow banks to become too big to fail. Some of them suggest specific economic disincentives to prevent growing too big and requirements that would break them up before reaching that point.

Yet the Obama plan accepts the notion of “too big to fail” — in the plan those institutions are labeled “Tier 1 Financial Holding Companies” — and proposes to regulate them more “robustly.” The idea of creating either market incentives or regulation that would effectively make banking safe and boring — and push risk-taking to institutions that are not too big to fail — isn’t even broached.

Or take derivatives. The Obama plan calls for plain vanilla derivatives to be traded on an exchange. But standard, plain vanilla derivatives are not what caused so much trouble for the world’s financial system. Rather it was the so-called bespoke derivatives — customized, one-of-a-kind products that generated enormous profits for institutions like A.I.G. that created them, and, in the end, generated enormous damage to the financial system. For these derivatives, the Treasury Department merely wants to set up a clearinghouse so that their price and trading activity can be more readily seen. But it doesn’t attempt to diminish the use of these bespoke derivatives.

“Derivatives should have to trade on an exchange in order to have lower capital requirements,” said Ari Bergmann, a managing principal with Penso Capital Markets. Mr. Bergmann also thought that another way to restrict the bespoke derivatives would be to strip them of their exemption from the antigambling statutes. In a recent article in The Financial Times, George Soros, the financier, wrote that “regulators ought to insist that derivatives be homogeneous, standardized and transparent.” Under the Obama plan, however, customized derivatives will remain an important part of the financial system.

Everywhere you look in the plan, you see the same thing: additional regulation on the margin, but nothing that amounts to a true overhaul. The new bank supervisor, for instance, is really nothing more than two smaller agencies combined into one. The plans calls for new regulations aimed at the ratings agencies, but offers nothing that would suggest radical revamping.

The plan places enormous trust in the judgment of the Federal Reserve — trust that critics say has not really been borne out by its actions during the Internet and housing bubbles. Firms will have to put up a little more capital, and deal with a little more oversight, but once the financial crisis is over, it will, in all likelihood, be back to business as usual.

The regulatory structure erected by Roosevelt during the Great Depression — including the creation of the Securities and Exchange Commission, the establishment of serious banking oversight, the guaranteeing of bank deposits and the passage of the Glass-Steagall Act, which separated banking from investment banking — lasted six decades before they started to crumble in the 1990s. In retrospect, it would be hard to envision even the best-constructed regulation lasting more than that. If Mr. Obama hopes to create a regulatory environment that stands for another six decades, he is going to have to do what Roosevelt did once upon a time. He is going to have make some bankers mad.

Source / New York Times

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This Is Your Friendly American Banker

Thanks to Leslie Sklar / The Rag Blog

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Austin Lounge Lizards : Too Big to Fail

The Austin Lounge Lizards perform their delightful satirical ode to bank bail-outs: Too Big to Fail. Written by Lindsey Eck.

Thanks to Mariann Wizard and telebob / The Rag Blog

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Jim Hightower : 'Too Big to Fail' Is Too Big, Period.

Too big to fail. Photo by Jennifer Szymaszek / AP / Noise Between Stations.

The 'too big' claim forms the rationale for the diversion of regular people's money into rich people's pockets.

By Jim Hightower / April 4, 2009.

As skiers and backcountry hikers know, a whiteout is a blizzard that's so intense that those caught in it can't even see the blizzard.

That's how I think of the Wall Street bailout now swirling around us. So many trillions of our tax dollars are being blown at the financial giants that we're blinded by the density of it, unable to see where we are or know what direction we're headed.

However, one way to get your bearings in this bailout blizzard is to focus on the central point that both the bailors (Washington) and the bailees (Wall Street) keep pounding as an irrefutable truth that everyone simply has to accept -- namely, the institutions being rescued are too big to fail.

Even sheep know to flee when coyotes howl in unison -- and we commoners need to confront the absurdity of this "too big" claim, which forms the rationale for the entire diversion of regular people's money into rich people's pockets.

Wachovia, Merrill Lynch, Citigroup, Bank of America, AIG -- omigosh, cried the Powers That Be, these behemoths are linked to every other behemoth, so if we don't stuff them with tax dollars ... well, we have no choice, because they're just too big for the government to let fail.

Point No. 1: They have failed. They are kaput. It costs more to buy a snickerdoodle than to buy a share of Citigroup stock. AIG is 80 percent owned by you and me, the taxpayers. These once-haughty outfits are insolvent -- wards of the state.

Point No. 2: If they're too big, why should we sustain them? Let's be clear about something the establishment doesn't want you and me to understand -- these giants did not get so big and interconnected because of natural market forces and free-enterprise efficiencies. They amassed power the old-fashioned way: They got the government to give it to them. In the past 20 years or so, they lobbied furiously to get Washington to rig the rules so they could latterly bloat ... and float out of control.

A new report by Wallstreetwatch.org reveals that from 1998 to 2008, the finance industry made $1.7 billion in contributions to Washington politicians (55 percent to Repubs, 45 percent to Dems), spent $3.4 billion on lobbyists (3,000 of them on the industry payroll in 2007 alone) and won a dozen key deregulatory victories that led directly to today's financial meltdown.

Inherent in the industry's push for unbridled expansion was the unstated goal of guaranteeing that they would get taxpayer bailouts if things went badly. So many investors, businesses, employees and others would be hooked into these multitentacled blobs that government would be compelled to rescue the banks from their own excesses.

Knowing that they could privatize all of the profits from quick-buck schemes and socialize the losses, bankers were unleashed to do their damnedest. Which they did.

What to do now? Federal Reserve Chairman Ben Bernanke is calling on Congress to create a "super regulator" to control the irrational risks that the too-big boys take. Immodestly, Bernanke suggests that the Fed be this overseer. He is backed up by Timothy Geithner, President Barack Obama's treasury secretary and point man on rescuing the giants. He has just outlined a new regulatory regime that he suggests we entrust to the Fed.

Bad idea all around. First, the Fed already has far-reaching watchdog authority that it refused to use as today's crisis built up. We heard no bark and got no bite because, while the Fed has enormous public authority to regulate America's money supply, interest rates and banks, it is governed by -- guess who? -- bankers, and it operates essentially as a private banking cartel.

Second, and most important, too big to fail is too big to regulate. And too big to regulate means they are too big to tolerate. Period.

The answer is to split their investment, banking and insurance functions into separate companies and reinvigorate America's antitrust laws to restore competition in each of the three sectors of finance.

As Newsweek columnist Michael Hirsh put it in an online column in February, "We can't have a free-market economy dominated by institutions so huge that they don't have to play by free-market rules."

Copyright 2009, Creators Syndicate Inc.

[Texan 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.]

Source / AlterNet

Thanks to David Hamilton / The Rag Blog

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US Financial Institutions: Corrupt to the Core?

This graphic shows Bank of America's loans to directors, executives and other insiders since 2001. Graphic by David Puckett, Research by Stella Hopkins.
Secrecy shrouds insider loans
By Stella M.Hopkins / March 23, 2009

Experts see potential conflicts of interest in banks' $41 billion in insider lending, some during credit crunch and bailout.

Banks nationwide hold $41 billion in loans to directors, top executives and other insiders, a portfolio that experts say should be stripped of secrecy.

Insider lending to directors is particularly troublesome because it could cloud the judgment of people charged with protecting shareholders and overseeing bank management, the experts say.

Charlotte's two big banking names are among the biggest insider lenders.

At Bank of America, those loans more than doubled last year, to $624 million – the biggest dollar jump in the country. The largest of them likely went to three directors or their companies. The surge came during the third quarter as credit markets froze, the government prepared to infuse banks with billions in tax dollars and the board approved the purchase of troubled Merrill Lynch.

Wachovia ended 2008 with $747 million of insider loans, second only to the much larger JPMorgan. All of the loans were held by Wachovia directors or their companies, with just five holding the largest. Last year, the company had to sell itself amid staggering losses in part due to a 2006 deal.

Insider loans, ranging from home mortgages to multi-million-dollar lines of credit for big companies, are legal but largely shrouded from public scrutiny.

Banks don't have to explain increased insider lending. They don't have to disclose individual loan amounts or terms for any insiders, including executives. Directors and their businesses, often the largest insider borrowers, are completely shielded. Directors must approve insider loans greater than $500,000, so they sometimes vote on loans for each other or the executives they oversee.

Insider favoritism is against the law. Bankers and regulators say the loans are subject to greater scrutiny to ensure insiders aren't getting better terms and are creditworthy.

But top corporate governance experts contend that insider lending carries serious potential for conflict of interest among bank officials and must be stripped of secrecy. They argue that lending to directors, the watchdogs of management, must be revealed so shareholders can gauge their independence. And disclosure should be paramount for banks receiving government aid, said Ed Lawrence, a University of Missouri-St. Louis finance professor and co-author of a 1989 study that was a rare look at insider lending.

Seven of the 10 banks with the largest insider loans received a total of more than $50 billion in the banking bailout late last year, according to an Observer analysis of banks' federal filings.

“It's good for the public to know…where the money is going,” Lawrence said. “When you start taking public money, we hold them to a much higher standard.”

Terms of loans a key issue

The majority of the nation's 8,000-plus banks make insider loans, some very small. At the end of last year, banks had $41billion of insider loans, up 5.7 percent from a year earlier, according to the Observer's analysis.

Insider loans accounted for less than 2 percent of the banks' assets, amounts that are generally unlikely to seriously damage banks if the loans go sour. The loans tend to make up a larger percentage of business for smaller banks.

Not all large banks are big insider lenders. Wells Fargo, for example, was about the size of Wachovia before the San Francisco bank swooped up the wounded Charlotte institution late last year. Wells ended last year with $20 million of insider loans, a fraction of Wachovia's $747 million. Neither bank would discuss the disparity.

Most publicly traded companies were banned from making insider loans in 2002, part of the regulatory rush following the collapse of Enron and other accounting scandals.

But banks were excluded from the ban, partly because they're in the business of lending and also because the loans have been subject to extensive regulation for more than 25 years.

The loans were blamed for bank problems during the nation's S&L crisis. Lawrence and others have linked insider lending to bank failures. In December, the chairman of a large Irish bank resigned after revelations he had $109 million of secretive insider loans. In January, the government seized the Dublin bank.

“Studies of bank failures have found that insider abuse, including excessive or poor quality loans made, … is often a contributing factor to the failure,” says the “Insider Activities” handbook from the Comptroller of the Currency, the lead regulator for big national banks.

Banks can be hurt by even the perception of insider favoritism, the guide says.

“We don't have a difficulty with insider loans when they're properly written and extended,” said Ray Grace, the N.C. deputy banking commissioner who heads bank supervision for state-chartered firms. “It makes a certain amount of sense that a director or bank officer take that business to their own bank rather than shop it to a competitor.”

A key requirement is that insider loans be on the same terms as those to similar outsiders.

“This is a highly scrutinized area, so usually any problems would be caught early,” said Mindy West, a Federal Deposit Insurance Corp. chief whose job includes crafting instructions for bank examiners.

Large banks, such as Bank of America, have regulatory officials on site. Smaller banks are typically examined every 12 to 18 months. Regulatory officials request insider loan details for review prior to their regular bank examinations, West said. The FDIC has regulatory authority over about 5,100 banks.

New loans and increases in existing loans are especially likely to be scrutinized, West said. And a loan balance that doubled would probably trigger a second look.

Objectivity may be at risk

Longtime governance expert Charles Elson doesn't advocate banning insider loans, although he was startled the loans can run into hundreds of millions. But, he said, banks need to make full disclosure, revealing names, amounts and terms. He is especially concerned about disclosure for loans to directors and their interests.

“Management, who can dictate the terms of the loan, are being overseen by the director who is a beneficiary,” said Elson, director of the University of Delaware's Weinberg Center for Corporate Governance. “It compromises the director's ability to be objective.”

As borrowers, directors might be less rigorous when evaluating the CEO or other executives, he said. They might be unwilling to buck management when approving deals.

Wachovia's board approved its 2006 acquisition of mortgage lender Golden West Financial, a vote that ultimately helped push the bank near collapse. Shortly before that approval, the bank had $1.47 billion in insider lending. Fifteen borrowers held the largest loans. Banks aren't required to disclose details of past lending, so there's no way to identify those borrowers.

At the end of 2008, all of the bank's $747 million in insider loans was held by directors or their companies, said Julia Bernard, a spokeswoman for Wells Fargo, which bought Wachovia last year. Five borrowers held the largest loans. Bernard said most of the loans were made before 2008.

Wachovia's former chairman and longtime director, Lanty Smith, did not respond to two calls for comment.

Nell Minow, co-founder of The Corporate Library, said directors should take their business elsewhere if they aren't comfortable with disclosure.

“Do you want them as directors or do you want them as customers?” she said. “To the extent there's even the perception of conflict of interest, it's very important for them to be very transparent.”

TOP 10 INSIDER LENDERS

JPMorgan Chase, New York, $1.48 billion

Wachovia, Charlotte, N.C., $747 million

M&I Marshall & Ilsley, Milwaukee, $644.4 million

Bank of America, Charlotte, $624.2 million

Northern Trust, Chicago, $523.5 million

Union Bank, San Francisco, $499.3 million

BB&T, Winston-Salem, N.C., $493.8 million

Commerce Bank, Kansas City, Mo., $467.9 million

Regions Bank, Birmingham, Ala., $444.3 million

Comerica Bank, Dallas, $391.5 million

(Note: Wells Fargo, based in San Francisco, bought Wachovia on Dec. 31.)

Source / Charlotte Observer

Thanks to Mike Woods and Mariann Wizard / The Rag Blog

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Larry Ray : Congressional Kabuki and the Constitution

Graphic by Larry Ray / The Rag Blog.

Though none of our elected officials actually got made up in classical white face, their outraged and out sized exaggerations, both facial and verbal would have qualified them for a Kabuki casting call in Tokyo.

By Larry Ray / The Rag Blog / March 22, 2009

Iowa Republican Senator Charles Grassley's call for AIG bonus recipients to, " . . .follow the Japanese example and come before the American people and take that deep bow and say I’m sorry, and then either do one of two things — resign, or go commit suicide" was so over the top and insane that it reminded me of a Japanese Kabuki Theater plot.

Kabuki is classical ancient Japanese folk theater performed broadly and loudly for the general public. I became familiar with it when I lived in Tokyo years ago. Kabuki on the Potomac this week fit Kabuki's theatrical definition with lawmakers wailing loudly, uttering angry threats, and rhythmically pounding podiums in a performance of mangled metaphors and fantasy.

Though none of our elected officials actually got made up in classical white face, their outraged and out sized exaggerations, both facial and verbal would have qualified them for a Kabuki casting call in Tokyo. But they were playing to Americans . . . American voters. Let's review this week's performances.

A Treasury Department decision to not risk lawsuits and to allow payment of last year's Bush-approved retention contract bonuses by failing insurance giant AIG, set off a firestorm of anger and self-righteous rhetoric. The specter of AIG employees receiving bonuses while AIG is propped up by billions in taxpayer money opened the floodgates of rhetorical rage.

It also inadvertently created a bizarre moment of bipartisan participation on both sides of the aisle as the House reacted to steamed emails from their districts. It was time to affix blame. Names and faces were needed as a focus for threats and epithets

The populist Kabuki's first act centered upon Edward Liddy, who has been untangling AIG's myriad problems as a government appointed CEO of AIG. Liddy, former CEO of Allstate Insurance, who is working for a dollar a year, became a carnival punching bag as he testified before the House Capital Markets, Insurance and Government Sponsored Enterprises subcommittee last Wednesday.

Liddy quickly defused rumors and misinformation about the "bonuses" making it clear that after earlier executive housecleaning of AIG's top management, no performance bonuses were being paid at all to anyone. But, clearly going over the heads of many sub-intelligent members of the subcommittee, was his explanation of "retention bonuses" and how they worked.

The retention bonuses were contractual arrangements made with market specialists to defuse toxic financial bombs in AIG's failed 'Financial Products' division. "Wind down," it the term used. But while being neutralized to get them off AIG books, the potentially explosive complex credit default swap securities were still being actively traded. De-fusing the complicated potential bombs requires experts intimately familiar with how they worked. Mishandled or ignored, the securities could blow up and cause further potentially ruinous damage to AIG if not carefully and slowly sold off and neutralized. Picture McGuyver locating the red wire on the bomb's timer.

Firing the AIG FP division specialists and not paying them for the work they were legally contracted to do could invite disaster for AIG. Folks seemed to think managers were being paid huge bonuses to keep them as employees. In fact, it seems the promise of a bonus after they completed specific difficult contracted tasks was what "retained" them to complete the complex and difficult work . . . then they were free to go.

Highway contractors routinely contract to get a new bridge built as quickly as possible, and they accept promises of so many millions as a bonus if it is finished on time and even more if it is finished ahead of time. After the evil lords of AIG's Financial Products Division were fired and sent packing with no bonuses, AIG's remaining Financial Products specialists stayed on, working long hours to get the toxic trades off the books, and had money coming when they got the bad stuff off the books for good. That was the deal. This is essential for AIG to quickly return profitability and pay back the federal money propping it up. But no one wanted to hear all this. Folks back home wanted a pound of flesh, not clear reason. It was time to be mad and indignant!

The red faced representatives heard only the word BONUS in Liddy's explanation. And each used up his or her five minutes for the folks back home who were watching on TV to let the rude, accusing rhetoric fly at Mr. Liddy.

Subcommittee member, Judy Biggert, R-IL, was typical of the befuddled, yet angry, representatives to have a go at Mr. Liddy. Biggert, represents Illinois 13th district, and since her election in 1999, she has sponsored 92 bills of which 81 haven't made it out of committee and two were successfully enacted. She looked disheveled and confused, and after Mr. Liddy's complete explanation of the bonus situation he inherited, she, nonetheless, read from her rambling prepared remarks anyway. The general, simplistic image of bonuses and rich executives slurping umbrella drinks on their private jets was just too big a target.

"Give me three good reasons why the taxpayers should be paying, umm, . . . all those bonuses, with, you know, that taxpayer money . . . .?" Had she been listening, and not simply waiting to grandstand with her pre-prepared anger, she could have answered all three of her own questions from Mr. Liddy's explanation. Biggert's own net worth in 2007 was estimated at just under $7 million from her financial disclosure statements, so she should be able to explain what rich folks do to her unemployed constituents back home.

Democratic Congressman, Barney Frank, came on stage as an early plot changer, and in sputtering rage demanded the names of all those getting bonuses. A Kabuki Western where the sheriff sends out a posse for a possible mass trial of those pre-judged as guilty. And if Black Hat Liddy didn't cough them up, Frantic Frank would issue subpoenas! Never mind New York Attorney General, Andrew Cuomo had already made such a request.

Mr. Liddy exhibited impressive control and just let the madness about him rage while responding quickly and politely in the face of rude and shameless behaviour by his inquisitors. When Barney ended his threats and demand for names and addresses, Liddy read him a typical email from those being whipped up by misinformation and fear over the failing economy. The threatening email called for AIG employees to be garroted by piano wire. Liddy suggested that Mr. Frank might want to reconsider his demand simply based upon personal security reasons for his fellow Americans.

Just like in Kabuki theatre, those in the audience came and went. There was an intermission, during which MSNBC afternoon news reader, Nora O'Donnell, perhaps better known for co-hosting the New York City St. Patrick's Day Parade than her on air news work, warmed up. "Liddy is really getting bombarded," she snarled, and then shoving aside any journalistic credentials she may possess, she joined in the outrage demanding, "Why?" "When?" "Who?" instead of applying the journalistic challenge of finding answers to those basic questions herself as the reporter she is supposed to be.

As the weekend approaches, all this theater and angst has but one central schwerpunkt. The House frantically cobbled together a bill to "get back our taxpayer money." They voted 328-93 to impose a 90% tax on any bonuses paid by AIG. This populist mob, responding to impulse and mass hysteria, mostly caused within their own ranks, are supposed to be lawmakers. Legislators.

Over the weekend, hopefully both our esteemed Congressmen and Senators will drop by for a thoughtful look over the Constitution of the United States of America. Wiser heads, going back to the days of English King, James II, have stepped in to restore law and prevent mob rule such as has been proposed in this week's Kabuki theater at the Nation's Capitol.

They can even simply drop by WikipediA and type in "Bill of attainder." Their bill instituting a 90% tax on AIG bonuses should never even be considered in the Senate. You can't pass a law like they have just passed in the House. And you cannot ratify it in the Senate. The proposed law is against the law. Ex post facto.

Here it is plain and simple:

"A bill of attainder (also known as an act or writ of attainder) is an act of legislature declaring a person or group of persons guilty of some crime and punishing them without benefit of a trial.

Bills of attainder are forbidden by Article I, section 9, clause 3 of the United States Constitution."

Period. Curtain closed.

Next act: Less hysterical and more responsible legislators go the the real root of the problem and reinstate governmental financial regulatory oversight removed by Regan, which has allowed AIG, and dozens of other big players to run rampant during the recent Bush administration. Madly chasing horses already out of the barn will do nothing at all to fix the terribly broken world of high finance and banking.

[Retired journalist Larry Ray is a Texas native and former Austin television news anchor. He also posts at The iHandbill.]

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Obama: Seize the Moment and Shitcan Your Corrupt and Inept Economic & Military Teams

President elect Barack Obama introduces his new economic team: (From l.) Treasury Secretary Timothy Geithner, Council of Economic Advisers chair Christina Romer, and NEC director Larry Summers. Photo: Martinez Monsivais/AP.
Obama’s Moment is Passing Quickly
By Dave Lindorff / March 20, 2009

The actions of Obama's Chief Financial Adviser Larry Summers and his Treasury Secretary Tim Geithner in permitting the payment of $165 million in bonuses to AIG executives (Summers, according to the Wall Street Journal, actually pressed Sen. Chris Dodd, D-CT, to secretly remove a bar to the payment of such bonuses from the bailout bill) and the storm of public outrage that has followed public disclosure of those payments, provides President Obama, whose administration is stumbling badly on many fronts, with an opportunity to turn things around and avoid political disaster.

He should promptly demand Geithner's and Summers' resignations, and should also fire the CEO of AIG, Edward Liddy (as 80% owner of AIG, the US has the power to do that anytime). It would also be a good idea at the same time to fire the CEOs of all the leading banks that are at this point surviving on government bailouts.

This would allow Obama to correct the fundamental mistake he made during the transition period following the November election in installing a bunch of Clinton-era economic advisors and Bush holdovers to be his economic team.

The US economy is in disastrous shape, and it is going to take new ideas, and people untarnished by the last 30 years of deregulatory excess and unsavory links to Wall Street, to rescue it. Obama has no shortage of good people to turn to: Nobel economist and NY Times columnist Paul Krugman, former World Bank Chief Economist Joseph Stiglitz and economist James Galbraith all spring immediately to mind as people who could offer new and better approaches to addressing both the immediate crisis and the longer-term challenge of restoring the health of the nation's economy, and of making it work for everyone, instead of just the wealthy few.

Of course, it could be that Obama is really not interested in radically changing the US economy, and its financial system. He has certainly accepted the tarnished coin of the Wall Street establishment during his campaign, and could simply be doing their bidding, but one has to operate on the hope that this is not the case. After all, the Obama campaign also raised an unprecedented amount of cash from ordinary folks, and if money is influence, he owes those little people big time.

In any event, it seems clear that if this president who spoke during his campaign of "hope and change" continues to cater to the bankers and the corporate interests that want to see no major revamping of the economic system and the regulatory apparatus, he is headed for a one-term presidency--and a sad and failed one at that.

The voters who sent Obama to Washington have been willing to extend him the benefit of the doubt, even when he made his almost uniformly lousy cabinet picks. They were willing to grant that he had been handed a disastrous situation by the last administration.

But as each week passes, the disaster becomes less Bush's and Cheney's, and more Obama's.

The same can be said of Obama's other big crisis: the two endless wars in Iraq and Afghanistan. Again, Obama has largely retained and accepted the advice of the same people who helped run these huge policy disasters during the Bush/Cheney years, and is buying the basic assumptions of those two wars. He is most certainly not ending the Iraq conflict, and is now talking about leaving as many as 50,000 US troops in Iraq for years--as many as were in Vietnam in the fall of 1965. He is reportedly talking about doubling the number of troops in Afghanistan to over 60,000, and about expanding the war into Pakistan, and not just the tribal areas, but Baluchistan province, a heavily populated part of that country. This latter decision, which could lead to an explosion in Pakistan, and the collapse of the central government, could lead to an huge demand for more US troops in the area--perhaps hundreds of thousands more--and even to India's entry into the conflict.

This is as outrageous and doomed a strategy as is his economic program of trying to salvage the nation's zombie banks while nickel-and-diming a "stimulus" program for ordinary people.

He should seize the moment, shitcan his corrupt and inept economic team and sack his military advisers, including Defense Secretary Robert Gates and his Centcom commander David Petraeus, and bring in people who will tell him how to get the US out of both conflicts pronto.

If he fires and replaces his economic and military teams, and announces both a quick end to the Iraq and Afghanistan Wars and the immediate break-up of the country's big failed national banks and financial institutions, he has a chance to become a great president. If he does not, it is as predictable as the rising of the seas that his presidency will be a failure. We are nearing a point where the American public is going to lose patience with the half measures, the continuing pouring of national treasure down the twin sinkholes of the failed financial institutions and the two endless wars in the Middle East, and the tone-deaf behavior of cabinet secretaries and advisors who don't have a clue about how average Americans are living these days.

This is President Obama's moment for action. Firing Geithner and Summers would be a good start.

Americans should make an effort to let President Obama know that they want more than token stimulus programs. (Just consider this: official unemployment is now 8.1 percent, but only 4.5% of American workers are able to collect unemployment benefits, and meanwhile, real unemployment is closer to 18 percent. That's a lot of hurt, and not a lot of help.)

A good idea would be to join a march on the Pentagon set for this Saturday, March 21, (natassembly.org/MarchOnPentagon.html) and a two-day program of demonstrations against Wall Street set for April 3 and 4 in New York City (www.bailoutpeople.org).

[Dave Lindorff is a Philadelphia-based journalist and columnist. His latest book is "The Case for Impeachment" (St. Martin's Press, 2006). His work is available at www.thiscantbehappening.net.]

Source / Common Dreams

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Why Did A.I.G. Pay Goldman Sachs $12.9 Billion?

Hong Kong AIG building. Photo: Chow Meisy.
The Gift That Keeps on Giving
March 16, 2009

After four bailouts totaling some $170 billion, the American International Group has finally answered some of the questions about where the money went. Unfortunately, the answers have only succeeded in raising many more questions.

On Saturday, Americans learned that A.I.G. planned to pay $165 million in bonuses to executives and employees in the very division that caused the problems that led to the federal bailouts. Taxpayers have every right to be outraged, and President Obama was right to acknowledge that outrage on Monday, when he vowed to try to stop the payments.

Mr. Obama’s tough talk, however, contrasted with comments made by his top economic adviser, Lawrence Summers, and by the Treasury Department. They had already expressed dismay but said that legally they could do nothing to stop the bonuses, which, in fact, had already mostly been paid on Friday.

It is frustrating enough for Americans to try to figure out which part of that mixed message reflects the administration’s true position. But the bigger issue is that the bonuses are something of a distraction. Seen by themselves, the payments are huge, but they are less than one-tenth of 1 percent of the money already committed to the A.I.G. bailout.

Which brings us to the second disclosure of recent days. It was common knowledge that most of the A.I.G. bailout money had been funneled to the company’s trading partners — banks and other financial firms that would have lost big if A.I.G. were allowed to fail. On Sunday, after much prodding by Congress and the public, A.I.G. finally released the partners’ identities, along with amounts paid thus far to make them whole.

The largest single recipient was Goldman Sachs ($12.9 billion). The amount — hardly chump change even by Wall Street standards — appears to contradict earlier assertions by Goldman that its exposure to risk from A.I.G. was “not material” and that its positions were offset by collateral or hedges. If so, why didn’t the hedges pay up instead of the American taxpayers?

Other recipients include 20 European banks that received a total of $58.8 billion and Merrill Lynch ($6.8 billion), Bank of America ($5.2 billion) and Citigroup ($2.3 billion).

Altogether, the disclosures account for $107.8 billion in A.I.G. bailout money. Which leaves us wondering about the rest of the money. Another $30 billion was added to the A.I.G. bailout pot this month and must be accounted for as soon as it is spent. That leaves some $32 billion unaccounted for. Where did it go?

Taxpayers also need to be told the precise nature of the banks’ dealings with A.I.G. Appearing on “60 Minutes” on Sunday, Ben Bernanke, the Federal Reserve chairman, described A.I.G. as a company “that made all kinds of unconscionable bets.” Well, on the other side of those bets are the banks that received the bailout money. It is possible that one side of a bet is acting unconscionably and that another side is acting in good faith. But it’s also possible that both sides are trying to play an unseemly game to their own advantage.

Congress must investigate, and the new disclosures give them enough to get started. Untangling all the entanglements is not only essential to understanding how the system became so badly broken, but also to restoring faith in the government that it is up to the task of fixing it.

Source / New York Times

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