Thursday, April 24, 2014

More Obama Non-Lying? (Or 16th-Dimensional Chess Move As Net Neutrality Vanishes) POOF!



Those rich guys!

They never quit, do they?

Always one more way to screw up common citizens' lives in order to bring to themselves a few more (unneeded) pennies.

I've often thought that Pottersville2 won't outlast the bad economic times.

Today it was announced that no private blogs will outlast the "no net neutrality" times.

Because if only well-capitalized sites get access to the web, then the web ceases to exist except as a way to make money faster.

For them.

Not you.

April 24, 2014

Goodbye, Net Neutrality; Hello, Net Discrimination


Posted by Tim Wu

obama-net-wu.jpg
Obama at Coe College, in 2007. (Photograph by David Lienemann/AP.)

In 2007, at a public forum at Coe College, in Iowa, Presidential candidate Barack Obama was asked about net neutrality. Specifically, “Would you make it a priority in your first year of office to reinstate net neutrality as the law of the land? And would you pledge to only appoint F.C.C. commissioners that support open Internet principles like net neutrality?”

“The answer is yes,” Obama replied. “I am a strong supporter of net neutrality.” Explaining, he said, “What you’ve been seeing is some lobbying that says that the servers and the various portals through which you’re getting information over the Internet should be able to be gatekeepers and to charge different rates to different Web sites…. And that I think destroys one of the best things about the Internet — which is that there is this incredible equality there.”

If reports in the Wall Street Journal are correct, Obama’s chairman of the Federal Communications Commission, Thomas Wheeler, has proposed a new rule that is an explicit and blatant violation of this promise.

In fact, it permits and encourages exactly what Obama warned against: broadband carriers acting as gatekeepers and charging Web sites a payola payment to reach customers through a “fast lane.”

Late last night Wheeler released a statement accusing the Wall Street Journal of being “flat-out wrong.” Yet the Washington Post has confirmed, based on inside sources, that the new rule gives broadband providers “the ability to enter into individual negotiations with content providers … in a commercially reasonable matter.” That’s telecom-speak for payola payments, and a clear violation of Obama’s promise.

This is what one might call a net-discrimination rule, and, if enacted, it will profoundly change the Internet as a platform for free speech and small-scale innovation. It threatens to make the Internet just like everything else in American society: unequal in a way that deeply threatens our long-term prosperity.

Some history may help explain the situation. The new rule gives broadband providers what they’ve wanted for about a decade now: the right to speed up some traffic and degrade others. (With broadband, there is no such thing as accelerating some traffic without degrading other traffic.)

We take it for granted that bloggers, start-ups, or nonprofits on an open Internet reach their audiences roughly the same way as everyone else. Now they won’t. They’ll be behind in the queue, watching as companies that can pay tolls to the cable companies speed ahead.

The motivation is not complicated. The broadband carriers want to make more money for doing what they already do. Never mind that American carriers already charge some of the world’s highest prices, around sixty dollars or more per month for broadband, a service that costs less than five dollars to provide. To put it mildly, the cable and telephone companies don’t need more money.

In 2007, Obama understood all of this. Without net neutrality, the result would be “much better quality from the Fox News site and you’d be getting rotten service from the mom and pop sites.”

That year, he swore to me personally that he was committed to defending net neutrality. Unfortunately, his F.C.C. chairman is in the process of violating a core promise to innovators, to the technology sector, and, really, to all of us who use the Internet.

(Tim Wu is a professor at Columbia Law School and the author of “The Master Switch.” He has previously served as a senior advisor to the Federal Trade Commission and the chair of Free Press, an Internet advocacy organization.)

Wednesday, April 23, 2014

(Dems Lead Repubs for 2014) FBI/CIA/Military Even More Out of Control Than We Thought - BP Coup D'état, How WWIII Starts (Nobody Indicted Nobody Goes To Jail . . . Except You) And Certainly Not Flash Boys



The stories of our time?

Republicans Freak Out After Polls Show Democrats Leading 3 Out of 4 Senate Races
Republicans are freaking out after new polls showed Democrats leading or tied in four key Southern Senate races.
The latest New York Times Upshot/Kaiser Family Foundation Senate polls contained some bad news for Republicans. In three out of four Senate races they polled, Democrats led. In the one race where a Republican led, the lead was within the margin of error. In Arkansas, Democratic Sen. Mark Pryor leads his Republican challenger Rep. Tom Cotton, 46%-36%. In North Carolina, Sen. Kay Hagan leads her likely opponent, Thom Tillis, 42%-40%. In Louisiana Democrat Sen. Mary Landrieu leads 42%-18%, but due to Louisana’s non-primary system, Landrieu has to get 50% or more of the general election vote to win another term. If Landrieu finishes first, but with less than 50% of the vote, she will face a runoff. In Kentucky, Republican Senate Minority Leader Mitch McConnell is statistically tied with his Democratic opponent Alison Lundergan Grimes. McConnell leads 43%-42%.
Republicans have been trying to suppress the potential Democratic turnout in November by spreading throughout the media the idea that they were a lock to win the Senate in November. It turns out that a Republican victory in November is far from a sure thing. In fact, Republicans could end up losing some seats that in red states.
. . . The conservative media is not taking the news well that everyone is starting to catch on that their predictions of victory are starting to look like empty hot air. Bill Kristol of the Rupert Murdoch owned Weekly Standard wrote a frantic blog post that tried to discredit the poll.

Kristol wrote, “The Arkansas Senate race has been close in virtually every serious poll. The Republican challenger, Tom Cotton, probably had a small lead a month or so ago; after a massive negative assault on him by Harry Reid’s Super PAC, the Democratic incumbent, Mark Pryor, is probably now ahead by a point or two. That’s the story told by every reputable public and private poll, including, I’m told, polls by both campaigns.”


Just like in 2012, Republicans like Bill Kristol are arguing that the polls are skewed and the pollsters are in the bag for Democrats.
. . . It is too soon to tell, but the Republican predictions of a Senate takeover could end up being as wrong as the predictions of a GOP takeover in 2010 and 2012. The Republican media spin is designed to discourage Democrats from voting. Ignore the spin, and trust the numbers.

Greg Palast adds some day-old icing:

The BP executive was explaining to me how the CIA, MI6 and British Petroleum engineered a coup d'état, overthrowing an elected president of a nation who was “not favorable to BP.” The corporation's former Vice-President, Leslie Abrahams, is pictured here, holding an AK-47 in front of BP headquarters in Baku, Azerbaijan.  Like most of the other BP executives I spoke with, he proudly added that while he was working for BP, he was also an operative for MI6, British intelligence.
The conversation was far from the weirdest I had in my four-continent investigation of the real story of the Deepwater Horizon.
The BP oilrig blew out on April 20, 2010, four years ago this Sunday.

Earlier this month, the Obama Administration officially OK'd BP's right to resume drilling in the Gulf of Mexico. And two weeks ago, just to assure the company that all is forgiven, the U.S. Department of the Interior gave BP a new contract to drill in the Gulf of Mexico – right next to where the Deepwater Horizon went down. At the same time, the forgive-and-forget U.S. Justice Department has put the trial of David Rainey, the only BP big-shot charged with a felony crime in the disaster, on indefinite hold.
The Deepwater Horizon blow-out incinerated eleven men on the rig and poisoned 600 miles of Gulf coastline. What political fairy dust does BP keep in its pocket to receive virtual immunity from the consequences?
http://www.gregpalast.com/wp-content/uploads/LesAbrahams-in-Azerbaijan.jpg

(Click on photo to enlarge.)

WhoWhatWhy points us toward the current relevant story.

Covert Inquiry by F.B.I. Rattles 9/11 Tribunals


Matt Apuzzo

April 18, 2014

WASHINGTON — Two weeks ago, a pair of F.B.I. agents appeared unannounced at the door of a member of the defense team for one of the men accused of plotting the 9/11 terrorist attacks. As a contractor working with the defense team at Guantánamo Bay, Cuba, the man was bound by the same confidentiality rules as a lawyer. But the agents wanted to talk.

They asked questions, lawyers say, about the legal teams for Ramzi bin al-Shibh, Khalid Shaikh Mohammed and other accused terrorists who will eventually stand trial before a military tribunal at Guantánamo. Before they left, the agents asked the contractor to sign an agreement promising not to tell anyone about the conversation.

With that signature, Mr. bin al-Shibh’s lawyers say, the government turned a member of their team into an F.B.I. informant.

The F.B.I.’s inquiry became the focus of the pretrial hearings at Guantánamo this week, after the contractor disclosed it to the defense team. It was a reminder that, no matter how much the proceedings at the island military prison resemble a familiar American trial, the invisible hand of the United States government is at work there in ways unlike anything seen in typical courtrooms.

“It’s a courtroom with three benches,” said Eugene R. Fidell, who teaches military justice at Yale Law School. “There’s one person pretending to be the judge, and two other agencies behind the scenes exerting at least as much influence.”

Thirteen years after 9/11, nobody has been convicted in connection with the attacks and, because of the F.B.I. visit, a trial could be delayed even longer. But it was only the latest in a string of strange events at Guantánamo Bay that, coupled with the decade-long delay, have undermined a process that was supposed to move swiftly, without the encumbrances of the civilian legal system and its traditional rules of evidence.

Last year, as a lawyer for Mr. Mohammed was speaking during another hearing, a red light began flashing. Then the videofeed from the courtroom abruptly cut out. The emergency censorship system had been activated. But why? And by whom? The defense lawyer had said nothing classified. And the court officer responsible for protecting state secrets had not triggered the system. Days later, the military judge, Col. James L. Pohl, announced that he had been told that an “original classification authority” — meaning the C.I.A. — was secretly monitoring the proceedings. Unknown to everyone else, the agency had its own button, which the judge swiftly and angrily disconnected.

Last year, the government acknowledged that microphones were hidden inside what looked like smoke detectors in the rooms where detainees met with their lawyers. Those microphones gave officials the ability to eavesdrop on confidential conversations, but the military said it never did so.

“At some point, it just becomes silly,” said Glenn Sulmasy, a military law professor at the Coast Guard Academy who supports military trials for terrorism but said problems at Guantánamo Bay have undermined confidence in the system. “I don’t think we’re at that point yet, but at some point it just becomes surreal. It’s like there’s a shadow trial going on and we’re only finding out about it in bits and pieces.”

The court has also been troubled by computer problems. A botched computer update gave prosecutors and defense lawyers access to the other side’s confidential work. And the Pentagon acknowledged inadvertently searching and copying defense lawyers’ emails but said nobody read them.

“These things keep happening,” a defense lawyer, James Harrington, said this week as he asked for an investigation into the F.B.I.’s activities. The other instances seemed like government intrusion, Mr. Harrington said, but lawyers could not prove it. “Here it really happened.”

The F.B.I. would not comment and military prosecutors said they knew nothing about the investigation. But the F.B.I. appears to be investigating how The Huffington Post got ahold of a 36-page manifesto that Mr. Mohammed had written in prison.

The government hopes to start the trial early next year, but it is not clear whether this issue will result in another delay. Mr. Harrington said he wanted Colonel Pohl to question F.B.I. officials and determine whether anyone else on the defense team had been approached by or gave information to the government.

“It’s just a horrible atmosphere to operate in,” Mr. Harrington said Friday. “It’s built on a shaky foundation, and one thing after another happens. I don’t see how anyone can have confidence in this process.”

Christopher Jenks, a Southern Methodist University law professor and a former military prosecutor, said he sympathized with the Guantánamo prosecutors, who appeared to have been just as surprised as defense lawyers by the appearance of the F.B.I. and C.I.A. in their cases.

“You have these military prosecutors who are normally empowered to own their cases. And they don’t here,” Mr. Jenks said. If this were any other country’s system, Mr. Jenks said, “The reaction would be, ‘Oh my gosh. What a kangaroo process.’ ”

President George W. Bush created the military tribunal system for suspected terrorists in 2001. Years of court challenges followed and after the Supreme Court struck down the tribunal’s rules in 2006, Congress hurriedly wrote new rules giving prisoners more rights. More changes followed in 2009 and the government says the process is far better and fairer now.

The 9/11 trial, if it occurs, will be the biggest test of that system. Six detainees in other cases have pleaded guilty before military commissions. Two others have gone to trial and been found guilty, only to have their convictions thrown out by an appeals court.

Greg McNeal, a former adviser to the top Guantánamo prosecutor, said the military tribunal system was ripe for episodes like the one with the F.B.I. because it is so new. The civilian system and the traditional military judicial system have well-established rules and precedents for handling issues that arise. “Because it’s new and different, they may have a sense that they can get away with things,” Mr. McNeal said. He added, “There are interagency fights happening behind the scenes that have been going on for the past decade.”

The Obama administration had hoped to prosecute the 9/11 case in a New York criminal court. But it reversed course in the face of security fears and criticism that the government would grant constitutional rights to terrorists.

While the military tribunals have been plagued by delays, the department has successfully prosecuted several terrorism cases in civilian courts. Most recently, prosecutors in Manhattan won a conviction against Sulaiman Abu Ghaith, the most senior adviser to Osama bin Laden to be tried in civilian court in the United States since 9/11.

Attorney General Eric H. Holder Jr. noted that the New York case had proceeded from capture to conviction in about a year. “It is hard to imagine this case being presented with greater efficiency or greater speed,” he said.

Charlie Savage contributed reporting.

But Sardonicky reads them the riot act.

April 21, 2014

The Smell of Neocon Times in the Morning


The Ukraine reporting by the New York Times gets more shameless and shoddy by the day, a reflection of the increasing desperation of the neoliberal powers that be in their power grab for Ukraine. Tennessee union-busting Senator Bob Corker summed it up succinctly and inelegantly on the televised Sunday blatherfest: "We're going to lose Eastern Ukraine!"

He might as well have admitted that the re-ascendant American neocons already think they own the place, just because they orchestrated a coup and installed a puppet into power.

And now to today's lead Neocon Times article, ominously and inelegantly headlined "Photos Link Masked Men in East Ukraine to Russia."

For two weeks, the mysteriously well-armed, professional gunmen known as “green men” have seized Ukrainian government sites in town after town, igniting a brush fire of separatist unrest across eastern Ukraine. Strenuous denials from the Kremlin have closely followed each accusation by Ukrainian officials that the world was witnessing a stealthy invasion by Russian forces.
Orwell would have had a field day with this opening paragraph. Little green men with guns have landed upon a civilization recently infiltrated by red, white and blue men with guns, and the alien abduction cult victims reciting the script provided by the hack writers of Hollywood-on-the-Potomac are fighting a valiant battle against an extra-galactic enemy (Putin.)

Now, photographs and descriptions from eastern Ukraine endorsed by the Obama administration on Sunday suggest that many of the green men are indeed Russian military and intelligence forces — equipped in the same fashion as Russian special operations troops involved in annexing the Crimea region in February. Some of the men photographed in Ukraine have been identified in other photos clearly taken among Russian troops in other settings.
The Obama administration studio bosses have assigned themselves the  preternatural ability to instantly identify photos and costumes as authentically alien, green-men couture, as opposed to those shoddy knock-offs sewn by disabled sub-minimum wage slaves in a CIA-front sweat shop. Masked men are always easily identified by their identical masks, of course. Just like sarin bombs are easily traced to the Assad regime in Syria when proclaimed by White House fiat.

And Ukraine’s state security service has identified one Russian reported to be active among the green men as Igor Ivanovich Strelkov, a Russian military intelligence operative in his mid-to-late 50s. He is said to have a long résumé of undercover service with the Main Intelligence Directorate of the Russian general staff, most recently in Crimea in February and March and now in and around the eastern Ukrainian city of Slovyansk.
Another name for Ukraine's "state security service" is probably Blackwater, XE, or whatever State Department and CIA contractors are calling themselves these days. Strelkov - assuming that he is indeed one of the green men - is only "said to" (we are not told who is saying) have a history of undercover work.

“There has been broad unity in the international community about the connection between Russia and some of the armed militants in eastern Ukraine, and the photos presented by the Ukrainians last week only further confirm this, which is why U.S. officials have continued to make that case,” Jen Psaki, the State Department spokeswoman, said Sunday.
Translation: We marauding elites are all in this together. We hold our trumped-up pieces of evidence to be self-evident. (The Times, as a unified member of the Broad community, helpfully publishes all the fuzzy photos.)

Jen Psaki, incidentally, is not a career diplomat. She is a career public relations and marketing pro who has worked on several Democratic political campaigns, was the Obama spokesperson for his re-election bid before her appointment to the White House communications shop, and then was quickly transferred over to State to replace neocon Victoria "Fuck the EU" Nuland. Psaki also worked in the private sector, for the Global Strategy branding and consulting group. In other words, she is a professional bullshit artiste.

But masking the identity of its forces, and clouding the possibilities for international denunciation, is a central part of the Russian strategy, developed over years of conflict in the former Soviet sphere, Ukrainian and American officials say.
John R. Schindler, a former National Security Agency counterintelligence officer who now teaches at the Naval War College, calls it “special war”: “an amalgam of espionage, subversion, even forms of terrorism to attain political ends without actually going to war in any conventional sense.”>
Wow. So Putin has his own private, secret army, like Obama doesn't also have his own private, secret army. And some Russian wars are secret, incorporating spying, agitprop and terrorism? Of course, the Times fails utterly to mention the whole parallel universe thing. Russia has its KGB and “maskirovka” (disguised warfare), but if you just woke up after a half-century nap and picked up the Gray Lady today, you would never have learned that the United States has its CIA and its top-secret Special Ops military forces operating in more than 100 countries throughout the world.

Having requested Flash Boys by Michael Lewis from my local library, I thought Yves Smith, as usual, might have some even more helpful background for US on these financial system scamsters.

She does.

The Real Problem with High Frequency Trading

Posted on April 21, 2014

by Yves Smith
From Craig Heimark, a recovering derivatives trader, and Yves Smith
The media firestorm over high frequency trading has flagged some legitimate concerns but misses the real issues. While Michael Lewis’ book Flash Boys is sensationalistic and simplistic, it may goad regulators into action, particular since many knowledgeable observers have been making similar arguments for years.
At its foundation, high frequency trading is time-based arbitrage (which is different that statistical arbitrage which involves the real assumption of risk) and that is simply front running. It has become popular to demonize the high frequency trading crowd, but they aren’t the proper targets. The fact that high frequency trading exists at all is the result of poor regulation.
Now some would argue that regulators shouldn’t interfere with high frequency trading – as they also argue that all insider trading rules should be eliminated, since that help ensure that market prices reflect the latest news.

While there may be an economic argument for the elimination of insider trading rules, it comes at the expense of a level playing field. Michael Lewis’ claim that “The markets are rigged” has gotten press play precisely because trust in the integrity of the public markets is critical for them to function properly. That implies that equal access to order execution is more important than the academic arguments of greater efficiency.
Perversely, much of the regulation of the last twenty years has been nominally in the interest of “market efficiency” but has come at the expense of market integrity. Far too many of the arguments and studies saying the promotion of competition among exchanges (and dark pools) has led to greater efficiency look at the efficiency as measured by the bid ask spread (plus fees) only of trading in the top stocks (because if they are trade weighted so that is where all the volume is). But this greater efficiency comes at the expense of no reciprocal liquidity obligation (witness the flash crash) as well as reduced liquidity in less frequently traded stocks.
The societal benefit of trading is to reduce cost to raise capital for actual companies. Does anyone really think that narrowing the spread on Google by a penny or two makes any difference to its weighted average cost of capital?

In contrast, incidents like the flash crash and the feeling the market is rigged keep many small investors away from the market. The penalty for reduced liquidity in small stocks may actually be material to small company capital formation.
And these small investors are right to be concerned. The old exchange system was a hub and spoke model, which was a stable system architecture. The internet was an outgrowth of a DARPA project to make a communication system so decentralized that it could not be taken out by a nuclear strike. Hub and spoke models are stable, but subject to an outage, say by a nuclear bomb or electrical failure.

What chaos theorists have found is that highly decentralized networks are stable, as are single node networks (like exchanges), but that slightly decentralized networks are fragile. And that is what we have now thanks to the SEC’s misguided efforts to “modernize” the stock market via Regulation NMS.
So regulators have left investors with the worse possible market structure. We no longer have liquidity obligations to make orderly markets as we had with the old model. Our current system is more complex due to some decentralization, but it is not so decentralized that it is robust (in technology-speak, a synchronized mesh network). The complexity of keeping the slightly decentralized model synchronized is what makes the system unpredictable and more fragile. This is not just an academic network construct. It is why we saw some exchange crashes recently (like Nasdaq) that were due to code changes in the linkages and feeds between exchanges.
Similarly, the value high speed traders provide is reestablishing the integrity of a single price in a centralized market after Reg NMS fragmented the market. But in reality, the buy side and all brokers are already sophisticated enough to use electronic routing to reestablish that centralized market, but not at sub-second speed. So the only service HFT time-based arbitrage provides is a sub second service. We’ve yet to see anyone make a credible case for the social utility whatsoever of sub-one-second execution. So since sub-second order execution fails to provide any social utility, it follow that any profits they extract are a dead weight loss on stock transactors. Those strategies, with the complex order types and the payment for order flow, should be eliminated.
While exchanges are a natural monopoly like any network, there are, better ways to prevent monopoly abuse than the route US regulators have taken. The SEC should impose minimum resting time for order (which is the equivalent of the IEX 38-mile fiber optic spool that slows down incoming orders). This would not put the high frequency traders out of business; they’d still have statistical arbitrage and other high-value services, but it would eliminate the riskless time-based arbitrage of front running at sub-second intervals.
. . . this book grew out of my experience covering Wall Street. I’ve obviously been doing it since the crash in 2008. And over and over again, I would cover these very complex and often very socially destructive capers committed by white-collar criminals. And the punchline to all of the stories were basically the same: Nobody would get indicted; nobody went to jail.
And after a while, I started to become interested specifically in that phenomenon. Why was there no enforcement of any of this? And around the time of the Occupy protest, I decided to write this book, and then I shifted my focus to try to learn a lot more for myself about who does go to jail in this country, because I thought you really can’t make this comparison accurately until you learn about both sides of the equation, because it’s actually much more grotesque to consider the non-enforcement of white-collar criminals when you do consider how incredibly aggressive law enforcement is with regard to everybody else.
AARON MATÉ: Now, you spent time with the — with the poor and vulnerable and people of color, who have been targeted by this system. There was one case of a man in New York, who lives in Bed-Stuy, standing outside of his home
MATT TAIBBI: Right.
AARON MATÉ: — who was arrested. Can you take it from there?
MATT TAIBBI: Yeah, sure. I was actually in a — I was in a law office in Brooklyn, and I was actually waiting to speak to a lawyer about another case, when I met this 35-year-old African-American man, a bus driver. And I asked him what he was there for, and he told me that he had been arrested for, quote-unquote, "obstructing pedestrian traffic." And I thought he was kidding. You know, I didn’t know what that meant. And I asked him to show me his summons, and he pulled out a little — little piece of pink paper, and there it was. It was written, you know, "obstructing pedestrian traffic," which it turns out it meant that he was standing in front of his own house at 1:00 in the morning, and the police just didn’t like the way he looked and arrested him.
And this is part of the disorderly conduct statute here in New York, but this is one of these offenses that people get roped in for. It’s part of what a city councilman in another city called an "epidemic of false arrests," basically these new stats-based police strategies. The whole idea is to rope in as many people as you can, see how many of them have guns or warrants, and then basically throw back the innocent ones. But the problem is they don’t throw back everybody. They end up sweeping up a lot of innocent people and charging them with really pointless crimes.
AARON MATÉ: There’s a very comic scene where then he goes to court, and he has a hard time convincing his public defender why he doesn’t want to pay a fine for standing in front of his home.
MATT TAIBBI: Yeah, and this is something that I encountered over and over and over again, is that people who were charged with these minor sort of harassing offenses, they — when the state discovers that the case against them is not very good, they start offering deals to the accused. And when people protest that "I’m not going to plead, because I didn’t do anything wrong," they keep offering better and better and better deals. And no one can understand why they won’t plead guilty, because, in reality, most people do. They will end up taking —

AMY GOODMAN: Like all the bankers plead guilty.
MATT TAIBBI: Right, yeah, exactly. Of course, it’s completely the opposite situation on the other side of the coin. But in the case of Andrew, the guy who was arrested for obstructing pedestrian traffic, he literally could not convince his own lawyer that he was innocent. And it took a long, long time before they got the judge to ask the policeman on duty if there was actually anybody else on the street to obstruct. And it wasn’t until that moment that they dismissed the case, and it just took that long.
AMY GOODMAN: So let’s talk about the other side. And I want to go to Attorney General Eric Holder, his remarks before the Senate Judiciary Committee last May in which he suggests that some banks are just too big to jail.

ATTORNEY GENERAL ERIC HOLDER: I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to — to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy. And I think that is a function of the fact that some of these institutions have become too large. Again, I’m not talking about HSBC; this is just a more general comment. I think it has an inhibiting influence, impact, on our ability to bring resolutions that I think would be more appropriate.
AMY GOODMAN: That was Attorney General Eric Holder testifying before Congress. His remarks were widely criticized. This is Federal Judge Jed Rakoff speaking last November at the University of Pennsylvania Law School.

JUDGE JED RAKOFF: To a federal judge, who takes an oath to apply the law equally to rich and poor, this excuse, sometimes labeled the too-big-to-jail excuse, is, frankly, disturbing for what it says about the department’s apparent disregard for equality under the law.
AMY GOODMAN: That’s Federal Judge Jed Rakoff. Matt Taibbi, if you could respond? And then talk about the history of Eric Holder, where he came from.

MATT TAIBBI: Well, first of all, this idea that some companies are too big to jail, it makes some sense in the abstract. In a vacuum, of course it makes sense. If you have a company, a storied company that may have existed for a hundred, 150 years, that employs tens or maybe even 100,000 people, you may not want to criminally charge that company willy-nilly and wreck the company and cause lots of people to lose their jobs.

But there are two problems with that line of thinking if you use it over and over and over again. One is that there’s no reason you can’t proceed against individuals in those companies.

It’s understandable to maybe not charge the company, but in the case of a company like HSBC, which admitted to laundering $850 million for a pair of Central and South American drug cartels, somebody has to go to jail in that case. If you’re going to put people in jail for having a joint in their pocket or for slinging dime bags on the corner in a city street, you cannot let people who laundered $800 million for the worst drug offenders in the world walk.
AMY GOODMAN: Wait, this can’t be a parenthetical. Explain what you’re talking about with HSBC.
MATT TAIBBI: So, HSBC, again, this is one of the world’s largest banks. It’s Europe’s largest bank. And a few years ago, they got caught, swept up for a variety of offenses, money-laundering offenses. But one of them involved admitting that they had laundered $850 million for a pair — for two drug cartels, one in Mexico and one in South America, and including the notorious Sinaloa drug cartel in Mexico that is suspected in thousands of murders.
And in that case, they paid a fine; they paid a $1.9 billion fine. And some of the executives had to defer their bonuses for a period of five years — not give them up, defer them. But there were no individual consequences for any of the executives. Nobody had to pull money out of their own pockets for permanently. And nobody did a single day in jail in that case.
And that, to me, was an incredibly striking case. I ran that very day to the courthouse here in New York, and I asked around to the public defenders, you know, "What’s the dumbest drug case you had today?" And I found somebody who had been thrown in Rikers for 47 days for having a joint in his pocket. So —

AMY GOODMAN: And that’s — is that even illegal?
MATT TAIBBI: No, in New York City, actually, it’s not illegal to carry a joint around in your pocket. It was decriminalized way back in the late '70s. But with part of the now past stop-and-frisk, what they do is they would stop you, and then they would search you and force you to empty your pockets. When you empty your pockets, now it's no longer concealed, and now it’s illegal again. So they had — in that year, they had 50,000 marijuana arrests, even though marijuana—having marijuana was technically decriminalized at the time.
So, my point was: Here’s somebody at the bottom, he’s a consumer of the illegal narcotics business, and he’s going to jail, and then you have these people who are at the very top of the illegal narcotics business, and they’re getting a complete walk. And that’s just totally unacceptable.
AARON MATÉ: But back to this doctrine that you can’t punish an entire company for the misdeeds of a few because you might hurt the economy, you might hurt shareholders, you know, some of which are pension holders and — pension funds and so forth, how do you get from hurting a — how do you equate hurting an entire company to just not jailing a couple of executives?
MATT TAIBBI: Well, that’s the whole point. They’ve conflated the two things.
Originally — so, this — to answer the second part of your original question, "Where does this come from? Where does this doctrine come from?" way back in 1999, when Eric Holder was a deputy attorney general in the — in Clinton’s administration, he wrote a memo that has now come to be known as "the Holder Memo." And in it, he outlined a number of things.
Actually, it was originally considered a get-tough-on-corporate-crime memo, because it gave prosecutors a number of new tools with which they could go after corporate criminals. But at the bottom of it, there was this thing that he laid out called the "collateral consequences doctrine."

And what "collateral consequences" meant was that if you’re a prosecutor and you’re targeting one of these big corporate offenders and you’re worried that you may affect innocent victims, that shareholders or innocent executives may lose their jobs, you may consider other alternatives, other remedies besides criminal prosecutions — in other words, fines, nonprosecution agreements, deferred prosecution agreements.

And again, at the time, it was a completely sensible thing to lay out. Of course it makes sense to not always destroy a company if you can avoid it. But what they’ve done is they’ve conflated that sometimes-sensible policy with a policy of not going after any individuals for any crimes. And that’s just totally unacceptable.

Tuesday, April 22, 2014

(Latest Deep State Meme?) If Obama Dares To Move (Back) To Openness (Liberality?) Before Next Election On Republican Power-Dominated Issues, Why Not Reveal Saudi Role (and Other Foreigners?) in Financing 9/11 (and TPP)? (Just Kidding! No One Wants That - Unless A New Meme Is Required) New Oil Invasion Planned?


Professor Joe Stiglitz (on Tavis Smiley tonight!) let us know quite a bit of the down and dirty (totally secret from you and me, of course) of both the Republican and Democratic fast-tracking of the done-deal TPP (Trans-Pacific Partnership), which only benefits democracy-destroying international corporations and fabulously wealthy/connected individuals (who are the primary outsourcers of U.S. jobs among other self-enriching activities). Watch it as soon as it's available online. It's more than worth your time.


If you've been looking for a reason to return to wholehearted (somewhat, anyway) support of Obama again - as so many are being urged as we head into another election cycle, Russ Baker has an excellent idea.

Yeah, I know it'll be hard to believe that there is a way back (if back is truly the direction you would choose to proceed), but if there's no clear way forward . . . maybe it's an interim ploy?

Two Congressmen, a Democrat and a Republican, are asking Obama to declassify the Congressional Report on 9/11, which the Bush administration heavily redacted.
The two members of the House of Representatives have read the blacked-out portions, including 28 totally blank pages that deal largely with Saudi government ties to the alleged 9/11 hijackers.

This is apparently major connect-the-dots stuff — much more significant than what one may remember from Michael Moore’s film Fahrenheit 911, about Saudi royals and other Saudis studying and living in the US, who were allowed to go home without being interviewed in the aftermath of the attacks. This is about actual financial and logistical support of terrorism against the United States — by its ally, the Saudi government.

As a Hoover Institution media scholar wrote in the New York Post (normally no bastion of deep investigative inquiry):
The Saudis deny any role in 9/11, but the CIA in one memo reportedly found “incontrovertible evidence” that Saudi government officials — not just wealthy Saudi hardliners, but high-level diplomats and intelligence officers employed by the kingdom — helped the hijackers both financially and logistically. The intelligence files cited in the report directly implicate the Saudi embassy in Washington and consulate in Los Angeles in the attacks, making 9/11 not just an act of terrorism, but an act of war.

. . . The two outspoken Representatives, Walter Jones (R-NC) and Stephen Lynch (D-Mass) would be violating federal law if they offered any specifics about what they know, or even named any countries mentioned — but did say they were  “absolutely shocked” by revelations of foreign state involvement in the attacks. Now, they want a resolution requesting Obama declassify the entire document.

If the media were to do its job and create the kind of wall-to-wall coverage it bestows upon, say, inter-spousal murder trials, Obama might feel he had to release the full 9/11 report. He’d have to concede there is a public right to know, or at least explain in detail why he doesn’t think so. Either way, there would be major fireworks. But we’re not betting on either the president or the media doing the right thing.

Mainstream Media: Out To Lunch, So Far

How much publicity is this enormously significant story getting? Very, very little. A search of the Nexis-Lexis database turned up just 13 articles or transcripts. One was a very short, cautious piece from the Boston Globe. One was a transcript of TV commentator Lou Dobbs on Fox News. All of the others were specialty or ideological publications or blogs — Investor’s Business Daily, the Blaze, Prairie Pundit, Right Wing News, etc. (CNN’s Piers Morgan did interview Rep. Lynch). Nothing showed up from the New York Times, Washington Post, Politico, MSNBC or the broadcast networks.

That’s a remarkable oversight, given that the media did cover similar concerns expressed by former senators Bob Kerrey and Bob Graham almost two years ago. In an affidavit for a lawsuit by the families of 9/11 victims, Graham, head of the joint 2002 congressional 9/11 inquiry, said, “I am convinced that there was a direct line between at least some of the terrorists who carried out the September 11th attacks and the government of Saudi Arabia.” Kerrey, who served on the non-congressional 9/11 Commission, said in his own affidavit, “Evidence relating to the plausible involvement of possible Saudi government agents in the September 11th attacks has never been fully pursued.”

But two House members, one a Democrat, one a Republican, explicitly calling for the President to make the full report available? That’s certainly news.

What Will Obama Do?

If President Obama does declassify the records, that would be surprising, if not outright shocking.

Although he has belatedly (and under heavy pressure from his base) begun to shift more toward at least the rhetoric of openness, Obama failed to stand up for release of still-classified documents related to the John F. Kennedy assassination (a half century after that tragedy), and he has presided over myriad actions that take us further than ever from transparency. Meanwhile, the media has all but abdicated its responsibility to hold the administration’s feet to the fire on these and related matters.

At WhoWhatWhy, we understand how hard it is to get this kind of material into the hands of the American people. Our groundbreaking reporting on ties between prominent and powerful Saudis and the men said to have been on the planes attacking on September 11 (via a house in Sarasota, Florida) was almost entirely ignored by the establishment media, including many so-called “alternative” and “progressive” outlets, though it has nonetheless spread widely thanks to the Internet and social media. Even the above-mentioned New York Post only now has acknowledged our reporting on the Saudi-Sarasota connection, without mentioning our name or linking to us.

No matter. The significance is that others have come forward to ask tough questions about the daunting reach and self-protective reflexes of our government’s ever-expanding “secret sector.” With a related meta-issue — NSA surveillance — odd bedfellows like “leftie” Glenn Greenwald and “rightie” Larry Klayman (with a Bush appointed judge ruling in his favor) are going at the surveillance state simultaneously, mightily aided by former intelligence analyst Edward Snowden.

Whatever one thinks of the 9/11 story — and one needn’t buy the more extreme theories to be open to examining new, documented facts — there’s clearly more to that trauma than we have been allowed to know; and we suspect there are many more establishment figures with a hunger for the truth. And once more “respectable” Washington insiders like House (and Senate) members start saying shocking things — well, that’s a man-bites-dog story few news organizations can turn down.

As for the executive branch, representatives of the State Department, Department of Justice and FBI have repeatedly denied knowing anything about the Saudi angle. If those documents are ever declassified, the denials themselves — and those issuing those denials — should also be news.

Comments:

Whatever you do, don't read the comments.

They'll kill your momentary feel-good buzz.


Monday, April 21, 2014

(Billionaire Bloomie Lays His Divine Bets) Happy Tax Day! Why the Top 1% Pay a Much Lower Tax Rate Than You (How the Global Banking Game Is Rigged: FDIC Suing) Piketty's Rich Reveal



Thomas Frank (one of the most far-sighted - and my favorite - journalists of today) lights the fire that should put the put-upon (lazy, profligate, worthless - according to their betters) classes aflame.

And Thomas Piketty conducts the flame to a bright light. (Did I mention I love Thomases?)

Here's the reason why it's currently so blameless to accuse the hungry of being lazy and improvident.

I'll bet you haven't thought of Mugwumps since 11th-grade history class. If then.

Why Elite, Billionaire Liberalism Always Backfires


Apr 20, 2014

Liberal righteousness is a road to nowhere. Bloomberg and the Koch brothers have same contempt for working people

Thomas Frank

Liberals rejoice. The former mayor of New York City, megabillionaire Michael Bloomberg, recently announced to the New York Times that he will spend some $50 million dollars on an effort to confront the National Rifle Association and advance background-check legislation for gun buyers. I’m a strong supporter of gun control, so hooray, I guess.
What made the story worth noting was when the paper asked Bloomberg, one of the wealthiest men in the world, how much he planned to spend on the matter:

…he tossed the $50 million figure out as if he were describing the tip he left on a restaurant check.
“I put $50 million this year, last year into coal, $53 million into oceans,” he said with a shrug, describing his clean energy and sustainable fishing initiatives.
This sounds remarkably nonchalant, even indifferent. The reader naturally wonders what motivates a man who has dumped so many millions over the years with so little concern about results.
Thankfully, Bloomberg gives the answer a few paragraphs later. It seems he has been moved of late to contemplate mortality, and his political deeds — including, I suppose, his push for school “reform” and his wars on soda pop and cigarettes — are all undertaken with this problem in mind.
I am telling you if there is a God, when I get to heaven I’m not stopping to be interviewed. I am heading straight in. I have earned my place in heaven. It’s not even close.”
It’s Pascal’s Wager updated for the age of Citizens United. If God exists, Bloomberg naturally wants to be prepared, and so he has put his money on the most glaringly virtuous politics available.
He will advertise his goodness not as lesser men do — with hemp tote bags and locally made condiments and yoga in public places — but by overwhelming force of political spending, just as he did when persuading the people of New York City to give him a third term as mayor.
His victory there in 2009 was probably a little too narrow for his taste, but this time around it will not even be close. He will spend more. He will be sure he gets premier status with this airline. And when the time comes he will flash his platinum card at the attendant with “St. Peter” on his nametag, and he will proceed directly to enjoy the rewards of a lifetime collecting righteousness miles.

The Times hints that Bloomberg may have meant his theological remark as a joke, but even so it reminds us of something about the patrician strain of reform he represents ­– that we have seen politicians like Bloomberg before. During the nineteenth century, a long string of saintly aristocrats fought to reform the state and also to adjust the habits and culture of working-class people.
These two causes were the distinctive obsessions of the wealthy liberals of the day: government must be purified, and working people must learn to behave. They had to be coerced into giving up bad habits. They had to learn the ways of thrift and hard work. There had to be sin taxes. Temperance. Maybe even prohibition.
On the single greatest issue of the time, however, these sanctimonious reformers were of no use at all.
They were in favor of clean government, to be sure, but when it came to organized money’s war on the world, which was then bringing impoverishment and industrial combat and dislocations of every description, they were indistinguishable from the most stalwart conservatives.

Describing the patrician “Mugwump type,” the historian Richard Hofstadter writes,

[T]he most serious abuses of the unfolding economic order of the Gilded Age he either resolutely ignored or accepted complacently as an inevitable result of the struggle for existence or the improvidence and laziness of the masses. As a rule, he was dogmatically committed to the prevailing theoretical economics of laissez faire. . . . He imagined that most of the economic ills that were remediable at all could be remedied by free trade, just as he believed that the essence of government lay in honest dealing by honest and competent men.
If that description hits uncomfortably close to home, well, good. We’ve returned to the Gilded Age, laissez-faire is common sense again, and Victorian levels of inequality are back.
The single greatest issue of then is the single greatest issue of now, and once again people like Bloomberg — a modern-day Mugwump if ever there was one have nothing useful to say about it, other than to remind us when it’s time to bow before the mighty.
Oh, Bloomberg could be relentless in his mayoral days in his quest for sin taxes, for random police authority, for campaigns against sugary soda and trans fats. But put a “living wage” proposal on his desk, and he would denounce it as a Soviet-style interference in private affairs.
During the Occupy Wall Street protests, he declared that we should stop criticizing investment banks; it would cost us jobs: “If you want jobs you have to assist companies and give them confidence to go and hire people.”
Later on, when confronted with a successor who didn’t share his views, he graduated to straight-up trickle-down:The way to help those who are less fortunate is, number one, to attract more very fortunate people.”
Only by helping the rich, and helping them more, and then helping them even more, can we ever hope to do something for the poor.
And consider the enlightened views of the nation’s other neo-Mugwumps as they address us from the charitable foundations, the NPR airwaves, or the city hall of the burg you live in.
Listen to their endless plans for reforming education, for example, by which they always seem to mean either that we must unleash market forces in the schools or that students must make themselves more desirable to employers by studying one of the STEM fields.
We get rules and more tests, the entrepreneurs get freedom. And I have yet to hear of a liberal billionaire who feels doubts about “free trade” with, well, anyplace.

To say that there is no solidarity in this form of liberalism is to state the obvious. This is not about standing with you, it is about disciplining you: moving you out of the desirable neighborhoods, stopping and frisking you, prodding you to study the right things.

Or, at its very noblest, it is about enlisting you in some fake “grassroots” effort whose primary purpose is to demonstrate the supreme moral virtue of the neo-Mugwump who’s funding the thingto foam the runway for him as he makes his final approach to Heaven International Airport.


In this new political world, it often feels as though we non-billionaires have been reduced to spectators. Between the Koch brothers of the right and the neo-Mugwumps of the center, we seem to have no choice anymore.  Yes, the final decision on Election Day is still up to us, same as it is on “American Idol,” but the spectacle itself is arranged by exalted people who are as distant from us as Zeus was from the ancient Greeks.

And yet. Every now and then something comes up to remind us that there are ways to make our will felt even without the help of some heaven-minded billionaire.

For example, it feels appropriate to note that there was recently a strike by some 2,000 workers at Johns Hopkins Hospital in Baltimore, a world-famous establishment that happens to be attached to the university from which Michael Bloomberg graduated and to which Bloomberg has reportedly donated more money than any living alum has given to any university, anywhere.

The strike was a tactical affair that lasted only three days (I originally heard about it because a friend of mine is an organizer working with the hospital employees’ union), and it is far too early to predict how the matter will turn out.

Still, the situation it was meant to publicize reminds one of the situation in Michael Bloomberg’s New York: Wages for certain classes of workers that are allegedly so low that many of them must rely on food stamps, a top executive who earned compensation amounting to more than $3 million dollars in 2012, and in the background, a controversial public-private gentrification scheme that is transforming the surrounding neighborhood.


Now, maybe this whole thing is wrong-headed. Maybe those striking workers are the kind of people who drink Big Gulps, and maybe the only way to help them is by helping their employer, or by somehow making Baltimore attractive to the wealthy. But I can’t help but suspect that the Bloombergs of the world have the whole thing upside down.

That the way to improve a place — or to get folks to eat better food — actually starts with proper pay for the people who live there. And that this antiquated form of organizing, in which the disenfranchised come together to help one another, is the only truly promising way to avoid the disasters of the last Gilded Age.

(Thomas Frank is a Salon politics and culture columnist. His many books include What's The Matter With Kansas, Pity the Billionaire and One Market Under God. He is the founding editor of The Baffler magazine.)


Happy Tax Day, and Why the Top 1% Pay a Much Lower Tax Rate Than You


By Robert Reich, Robert Reich's Blog

15 April 14



t’s tax time again, April 15, when our minds turn toward paying the taxes we owe or possibly getting a tax refund. But what we don’t think about enough is whether our tax system is fair. The richest 1 percent of Americans are now getting the largest percent of total national income in almost a century. So you might think they’d pay a much higher tax rate than everyone else.

But you’d be wrong. Many millionaires pay a lower federal tax rate than many middle-class Americans.

Some don’t pay any federal taxes at all. That’s because they‘re allowed to deduct from their taxable income such things as large interest payments on mortgages for huge homes, also the costs of business entertainment and conferences (aka vacations at golf resorts), and gold plated health care plans.

Some also take advantage of tax loopholes that let them park some of their earnings in offshore tax havens like the Bahamas or the Netherlands Antilles.

And other loopholes that allow them to treat some income as capital gains – subject to a much lower tax rate than ordinary income.

If you happen to be a hedge-fund or private-equity manager, there’s a capital gains loophole designed especially for you.

Consider the Social Security payroll tax and the situation is even more lopsided. That tax applies to every dollar of income up to a cap — which this year is $117,000. Anything earned above the cap is not subject to Social Security taxes at all – meaning anyone with a high income pays a much smaller percentage of it in Social Security taxes than most people do.

Put these all together and you see why Warren Buffet, the second richest person in America, pays a lower tax rate than his secretary, as he readily admits.


State and local taxes are even more regressive. The poorest fifth of Americans pay an average state and local tax rate of over 11 percent, while the richest fifth pay only 5.6 percent.
This isn’t small change. State and local taxes account for about 40 percent of all government revenues.


Believe it or not, Republicans want to make all this worse by cutting taxes on the wealthy even more.

Paul Ryan’s new budget doesn’t just slice Medicare, education, and food stamps. It also lowers the top federal tax rate to 25 percent.

When the rich are let off the hook in all these ways, the rest of America has to pay more in taxes to make up the difference – or have services cut because government doesn’t have the funds.

Comments:

# Rockster 2014-04-16 06:22

Can we all agree that the huge majority of people have been victimized by a professionally executed long term class war. The real question seems; "What is the best course of action to start waking people up to their slowly boiling water rising on their friends and family before we are all cooked?" I've read that the only successful revolutions have been nonviolent . History seems to teach that directly attacking those with the really Big Guns is really close to mass suicide. There are brave people quietly standing for peace, justice and brotherly love and maybe they know something.

# Robbee 2014-04-16 08:36

To paraphrase Itt Romney, every sucker who runs a company, like I do, and takes his pay in anything but capital gains, is a dunce unqualified to be president."

We 99% have been carrying rich folks ever since capital gains. Income tax is not the only regressive tax, so are sales tax (and property tax that even renters pay in rent).

Is it any wonder that Congress can't find money to fund public services? Congress gives it to fellow millionaires. We carry 1% who never pay their fair share!

As you read the next essay, don't forget who was running the New York Fed (our boy Timmy Geithner). He did such a good job that he was due several promotions!

April 14, 2014

The Global Banking Game Is Rigged, and the FDIC Is Suing


By Ellen Brown

Taxpayers are paying billions of dollars for a swindle pulled off by the world's biggest banks, using a form of derivative called interest-rate swaps; and the Federal Deposit Insurance Corporation has now joined a chorus of litigants suing over it. . . It is not just that local governments, universities and pension funds made a bad bet on these swaps. The game itself was rigged, as explained below.

Rigging the game. by Pinerest


Derivatives . . . have turned into a windfall for banks and a nightmare for taxpayers. . . . While banks are still collecting fixed rates of 3 to 6 percent, they are now regularly paying public entities as little as a tenth of one percent on the outstanding bonds, with rates expected to remain low in the future. Over the life of the deals, banks are now projected to collect billions more than they pay state and local governments - an outcome which amounts to a second bailout for banks, this one paid directly out of state and local budgets.
It is not just that local governments, universities and pension funds made a bad bet on these swaps. The game itself was rigged, as explained below. The FDIC is now suing in civil court for damages and punitive damages, a lead that other injured local governments and agencies would be well-advised to follow. But they need to hurry, because time on the statute of limitations is running out.

The Largest Cartel in World History
On March 14, 2014, the FDIC filed suit for LIBOR-rigging against sixteen of the world's largest banks - including the three largest US banks (JPMorgan Chase, Bank of America, and Citigroup), the three largest UK banks, the largest German bank, the largest Japanese bank, and several of the largest Swiss banks.

Bill Black, Professor of Law and Economics and a former bank fraud investigator,   calls them "the largest cartel in world history, by at least three and probably four orders of magnitude." 
LIBOR (the London Interbank Offering Rate) is the benchmark rate by which banks themselves can borrow. It is a crucial rate involved in hundreds of trillions of dollars in derivative trades, and it is set by these sixteen megabanks privately and in secret.
Interest rate swaps are now a $426 trillion business. That's trillion with a "t" -- about seven times the gross domestic product of all the countries in the world combined.
According to the Office of the Comptroller of the Currency, in 2012 US banks held $183.7 trillion in interest-rate contracts, with only four firms representing 93% of total derivative holdings; and three of the four were JPMorgan Chase, Citigroup, and Bank of America, the US banks being sued by the FDIC over manipulation of LIBOR.
Lawsuits over LIBOR-rigging have been in the works for years, and regulators have scored some very impressive regulatory settlements. But so far, civil actions for damages have been unproductive for the plaintiffs. The FDIC is therefore pursuing another tack.
But before getting into all that, we need to look at how interest-rate swaps work. It has been argued that the counterparties stung by these swaps got what they bargained for -- a fixed interest rate. But that is not actually what they got. The game was rigged from the start.

The Sting
Interest-rate swaps are sold to parties who have taken out loans at variable interest rates, as insurance against rising rates. The most common swap is one where counterparty A (a university, municipal government, etc.) pays a fixed rate to counterparty B (the bank), while receiving from B a floating rate indexed to a reference rate such as LIBOR.

If interest rates go up, the municipality gets paid more on the swap contract, offsetting its rising borrowing costs. If interest rates go down, the municipality owes money to the bank on the swap, but that extra charge is offset by the falling interest rate on its variable rate loan. The result is to fix borrowing costs at the lower variable rate.
At least, that is how it's supposed to work. The catch is that the swap is a separate financial agreement -- essentially an ongoing bet on interest rates. The borrower owes both the interest on its variable rate loan and what it must pay out on this separate swap deal. And the benchmarks for the two rates don't necessarily track each other. As explained by Stephen Gandel on CNN Money:

The rates on the debt were based on something called the Sifma municipal bond index, which is named after the industry group that maintains the index and tracks muni bonds. And that's what municipalities should have bought swaps based on. Instead, Wall Street sold municipalities Libor swaps, which were easier to trade and [were] quickly becoming a gravy train for the banks.
Historically, Sifma and LIBOR moved together. But that was before the greatest-ever global banking cartel got into the game of manipulating LIBOR. Gandel writes:

In 2008 and 2009, Libor rates, in general, fell much faster than the Sifma rate. At times, the rates even went in different directions. During the height of the financial crisis, Sifma rates spiked. Libor rates, though, continued to drop. The result was that the cost of the swaps that municipalities had taken out jumped in price at the same time that their borrowing costs went up, which was exactly the opposite of how the swaps were supposed to work.
The two rates had decoupled, and it was chiefly due to manipulation. As noted in the SEUI report:/div>

[T]here is . . . mounting evidence that it is no accident that these deals have gone so badly, so quickly for state and local governments.

Ongoing investigations by the U.S. Department of Justice and the California, Florida, and Connecticut Attorneys General implicate nearly every major bank in a nationwide conspiracy to rig bids and drive up the fixed rates state and local governments pay on their derivative contracts.

Changing the Focus to Fraud

Suits to recover damages for collusion, antitrust violations and racketeering (RICO), however, have so far failed. In March 2013, SDNY Judge Naomi Reece Buchwald dismissed antitrust and RICO claims brought by investors and traders in actions consolidated in her court, on the ground that the plaintiffs lacked standing to bring the claims.
She held that the rate-setting banks' actions did not affect competition, because those banks were not in competition with one another with respect to LIBOR rate-setting; and that "the alleged collusion occurred in an arena in which defendants never did and never were intended to compete." 

Okay, the defendants weren't competing with each other. They were colluding with each other, in order to unfairly compete with the rest of the financial world - local banks, credit unions, and the state and local governments they lured into being counterparties to their rigged swaps. The SDNY ruling is on appeal to the Second Circuit

In the meantime, the FDIC is taking another approach. Its 24-count complaint does include antitrust claims, but the emphasis is on damages for fraud and conspiring to keep the LIBOR rate low to enrich the banks. The FDIC is not the first to bring such claims, but its massive suit adds considerable weight to the approach.
Why would keeping interest rates low enrich the rate-setting banks? Don't they make more money if interest rates are high?
The answer is no. Unlike most banks, they make most of their money not from ordinary commercial loans but from interest rate swaps.
The FDIC suit seeks to recover losses caused to 38 US banking institutions that did make their profits from ordinary business and consumer loans - banks that failed during the financial crisis and were taken over by the FDIC.
They include Washington Mutual, the largest bank failure in US history. Since the FDIC had to cover the deposits of these failed banks, it clearly has standing to recover damages, and maybe punitive damages, if intentional fraud is proved.
The Key Role of the Federal Reserve
The rate-rigging banks have been caught red-handed, but the greater manipulation of interest rates was done by the Federal Reserve itself. The Fed aggressively drove down interest rates to save the big banks and spur economic recovery after the financial collapse. In the fall of 2008, it dropped the prime rate (the rate at which banks borrow from each other) nearly to zero

This gross manipulation of interest rates was a giant windfall for the major derivative banks. Indeed, the Fed has been called a tool of the global banking cartel. It is composed of 12 branches, all of which are 100% owned by the private banks in their districts; and the Federal Reserve Bank of New York has always been the most important by far of these regional Fed banks. New York, of course is where Wall Street is located. 

LIBOR is set in London; but as Simon Johnson observed in a New York Times article titled The Federal Reserve and the LIBOR Scandal, the Fed has jurisdiction whenever the "safety and soundness" of the US financial system is at stake. The scandal, he writes, "involves egregious, flagrant criminal conduct, with traders caught red-handed in e-mails and on tape." He concludes:

This could even become a "tobacco moment," in which an industry is forced to acknowledge its practices have been harmful - and enters into a long-term agreement that changes those practices and provides continuing financial compensation.
   Bill Black concurs, stating, "Our system is completely rotten. All of the largest banks are involved - eagerly engaged in this fraud for years, covering it up." The system needs a complete overhaul.
In the meantime, if the FDIC can bring a civil action for breach of contract and fraud, so can state and local governments, universities, and pension funds.
The possibilities this opens up for California (where I'm currently running for State Treasurer) are huge. Fraud is grounds for rescission (terminating the contract) without paying penalties, potentially saving taxpayers enormous sums in fees for swap deals that are crippling cities, universities and other public entities across the state.
Fraud is also grounds for punitive damages, something an outraged jury might be inclined to impose. My next post will explore the possibilities for California in more detail. Stay tuned.
______
(Ellen Brown is an attorney, founder of the  Public Banking Institute , and a  candidate for California State Treasurer  running on a state bank platform. She is the author of twelve books, including the best-selling  Web of Debt  and her latest book,  The Public Bank Solution , which explores successful public banking models historically and globally.  See http://EllenBrown4Treasurer.org, http://EllenBrown.com.)

Have you been getting the idea lately that capitalism (which is screamed to the rooftops by platinumed grifters and the basest of common crooks alike) may not actually have been the best system for a democratic nation after all?

FYI:  the revealing statistics:

April 14, 2014

Capitalism Is Not Working - Analysis of 200 Years of Data Shows Worsening Inequality Is an Inevitable Outcome of Free Market Capitalism


What are the grand dynamics that drive the accumulation and distribution of capital? Questions about the long-term evolution of inequality, the concentration of wealth, and the prospects for economic growth lie at the heart of political economy. But satisfactory answers have been hard to find for lack of adequate data and clear guiding theories.

In Capital in the Twenty-First Century, Thomas Piketty analyzes a unique collection of data from twenty countries, ranging as far back as the eighteenth century, to uncover key economic and social patterns. His findings will transform debate and set the agenda for the next generation of thought about wealth and inequality.

UPDATE : A look at the reviews of other economists to the Piketty work and a look a central Piketty prediction that global growth will collapse from 2020-2100.

Piketty shows that modern economic growth and the diffusion of knowledge have allowed us to avoid inequalities on the apocalyptic scale predicted by Karl Marx. But we have not modified the deep structures of capital and inequality as much as we thought in the optimistic decades following World War II.

The main driver of inequality - the tendency of returns on capital to exceed the rate of economic growth - today threatens to generate extreme inequalities that stir discontent and undermine democratic values.

But economic trends are not acts of God. Political action has curbed dangerous inequalities in the past, Piketty says, and may do so again

A work of extraordinary ambition, originality, and rigor, Capital in the Twenty-First Century reorients our understanding of economic history and confronts us with sobering lessons for today.


The book draws on reams of data from the United States and numerous other countries. Most of the data comes from income tax records and estate tax/inheritance records. The sheer quantity of data that underlies Piketty's conclusions is unprecedented, and as a result his work deserves a great deal of credibility.

While the book is quite long, the major conclusion can be summarized very briefly: Piketty has found that, over the long run, the return on capital is higher than the growth rate of the overall economy. In other words, accumulated and inherited wealth becomes a larger fraction of the economic pie over time. This happens more or less automatically, and there is no reason to believe this trend will change or reverse course.

Piketty argues that the reduction in inequality in developed countries after World War II was a "one-off" that was driven entirely by political choices and policies. It did not happen automatically. Those policies have now been largely reversed, especially in the United States. As a result the drive toward increased inequality is likely to be relentless.

Piketty's solution is a global wealth tax. While this seems politically unfeasible, he argues that it is the only thing likely to work.



Click picture to enlarge.

[From the New Yorker] - At first, Piketty concentrated on getting the facts down, rather than interpreting them. Using tax records and other data, he studied how income inequality in France had evolved during the twentieth century, and published his findings in a 2001 book. A 2003 paper that he wrote with Emmanuel Saez, a French-born economist at Berkeley, examined income inequality in the United States between 1913 and 1998.
It detailed how the share of U.S. national income taken by households at the top of the income distribution had risen sharply during the early decades of the twentieth century, then fallen back during and after the Second World War, only to soar again in the nineteen-eighties and nineties.

With the help of other researchers, including Saez and the British economist Anthony Atkinson, Piketty expanded his work on inequality to other countries, including Britain, China, India, and Japan. The researchers established the World Top Incomes Database, which now covers some thirty countries, among them Malaysia, South Africa, and Uruguay.
Piketty and Saez also updated their U.S. figures, showing how the income share of the richest households continued to climb during and after the Great Recession, and how, in 2012, the top one per cent of households took 22.5 per cent of total income, the highest figure since 1928.
The question is what’s driving the upward trend. Piketty didn’t think that economists’ standard explanations were convincing, largely because they didn’t pay enough attention to capital accumulation — the process of saving, investing, and building wealth which classical economists, such as David Ricardo, Karl Marx, and John Stuart Mill, had emphasized.
Piketty defines capital as any asset that generates a monetary return. It encompasses physical capital, such as real estate and factories; intangible capital, such as brands and patents; and financial assets, such as stocks and bonds.
In modern economics, the term “capital” has been purged of its ideological fire and is treated as just another “factor of production,” which, like labor and land, earns a competitive rate of return based upon its productivity. A popular model of economic growth developed by Robert Solow, one of Piketty’s former colleagues at M.I.T., purports to show how the economy progresses along a “balanced growth path,” with the shares of national income received by the owners of capital and labor remaining constant over time.
This doesn’t jibe with modern reality. In the United States, for example, the share of income going to wages and other forms of labor compensation dropped from sixty-eight per cent in 1970 to sixty-two per cent in 2010 — a decline of close to a trillion dollars.
Some people claim that the takeoff at the very top reflects the emergence of a new class of “superstars” — entrepreneurs, entertainers, sports stars, authors, and the like — who have exploited new technologies, such as the Internet, to enlarge their earnings at the expense of others in their field. If this is true, high rates of inequality may reflect a harsh and unalterable reality: outsized spoils are going to go to Roger Federer, James Patterson, and the WhatsApp guys.
Piketty rejects this account. The main factor, he insists, is that major companies are giving their top executives outlandish pay packages. His research shows that “supermanagers,” rather than “superstars,” account for up to seventy per cent of the top 0.1 per cent of the income distribution. (In 2010, you needed to earn at least $1.5 million to qualify for this élite group.) Rising income inequality is largely a corporate phenomenon.
Many C.E.O.s receive a lot of stock and stock options. Over time, they and other rich people earn a lot of money from the capital they have accumulated: it comes in the form of dividends, capital gains, interest payments, profits from private businesses, and rents.
Income from capital has always played a key role in capitalism. Piketty claims that its role is growing even larger, and that this helps explain why inequality is rising so fast. Indeed, he argues that modern capitalism has an internal law of motion that leads, not inexorably but generally, toward less equal outcomes.
The law is simple. When the rate of return on capital — the annual income it generates divided by its market value — is higher than the economy’s growth rate, capital income will tend to rise faster than wages and salaries, which rarely grow faster than G.D.P.
If ownership of capital were distributed equally, this wouldn’t matter much. We’d all share in the rise in profits and dividends and rents. But in the United States in 2010, for example, the richest ten per cent of households owned seventy per cent of all the country’s wealth (a good surrogate for “capital”), and the top one per cent of households owned thirty-five per cent of the wealth.
By contrast, the bottom half of households owned just five per cent. When income generated by capital grows rapidly, the richest families benefit disproportionately.
80% Tax On Income Over 1 Million Dollars A Year and Net Worth Tax 
Given that inequality is a worldwide phenomenon, Piketty aptly has a worldwide solution for it: a global tax on wealth combined with higher rates of tax on the largest incomes.
How much higher? Referring to work that he has done with Saez and Stefanie Stantcheva, of M.I.T., Piketty reports, “According to our estimates, the optimal top tax rate in the developed countries is probably above eighty per cent.” Such a rate applied to incomes greater than five hundred thousand or a million dollars a year “not only would not reduce the growth of the US economy but would in fact distribute the fruits of growth more widely while imposing reasonable limits on economically useless (or even harmful) behavior.” 
Piketty is referring here to the occasionally destructive activities of Wall Street traders and investment bankers. His new wealth tax would be like an annual property tax, but it would apply to all forms of wealth.
Households would be obliged to declare their net worth to the tax authorities, and they would be taxed upon it. Piketty tentatively suggests a levy of one per cent for households with a net worth of between one million and five million dollars; and two per cent for those worth more than five million.
“Or one might prefer a much more steeply progressive tax on large fortunes (for example a rate of 5 to 10 percent on assets above one billion euros),” he adds.
A wealth tax would force individuals who often manage to avoid other taxes to pay their fair share; and it would generate information about the distribution of wealth, which is currently opaque.
Some people think that the world’s billionaires have so much money that it would be enough to tax them at a low rate to solve all the world’s problems,” Piketty notes. “Others believe that there are so few billionaires that nothing much would come of taxing them more heavily. . . . In any case, truly democratic debate cannot proceed without reliable statistics.” 
Reality Of Attempts To Implement Wealth Taxes 
The nations of the world can’t agree on taxing harmful carbon emissions, let alone taxing the capital of their richest and most powerful citizens. Piketty concedes as much. Still, he says, his proposal provides a standard against which to judge other proposals; it points to the need for other useful reforms, such as improving international banking transparency; and it could be introduced in stages.
A good place to begin, he thinks, would be a European wealth tax that would replace the property tax, which “in most countries is tantamount to a wealth tax on the propertied middle class.”
But that may be utopian, too. If the European Union moved ahead with Piketty’s proposal, it would produce a rush to tax havens like Switzerland and Luxembourg. Previous efforts to introduce wealth taxes at the national level have run into problems.

Spain, for example, adopted a wealth tax in 2012 and abolished it at the start of this year. In Italy, a wealth tax proposed in 2011 never went through. Such difficulties explain why governments still rely on other, admittedly imperfect, tools to tax capital, such as taxes on property, estates, and capital gains.
 
In the United States, the very idea of a new wealth tax looks like a nonstarter politically, as would the notion of raising the top rate of income tax to eighty per cent.








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Posted by brian wang