Unseen Moral Bankruptcy & How to Stop the Madness Permanently & Punish the Guilty

Bob Herbert and several others address the various reasons I have stopped expecting much real change from the Obamaniacs, and if Rahmbo is not fired immediately, I don't think I'll be changing my mind anytime soon.

How loud do the alarms have to get? There is an economic emergency in the country with millions upon millions of Americans riddled with fear and anxiety as they struggle with long-term joblessness, home foreclosures, personal bankruptcies and dwindling opportunities for themselves and their children.

The door is being slammed on the American dream and the politicians, including the president and his Democratic allies on Capitol Hill, seem not just helpless to deal with the crisis, but completely out of touch with the hardships that have fallen on so many.

While the nation was suffering through the worst economy since the Depression, the Democrats wasted a year squabbling like unruly toddlers over health insurance legislation. No one in his or her right mind could have believed that a workable, efficient, cost-effective system could come out of the monstrously ugly plan that finally emerged from the Senate after long months of shady alliances, disgraceful back-room deals, outlandish payoffs and abject capitulation to the insurance companies and giant pharmaceutical outfits.

The public interest? Forget about it.

With the power elite consumed with its incessant, discordant fiddling over health care, the economic plight of ordinary Americans, from the middle class to the very poor, got pathetically short shrift. And there is no evidence, even now, that leaders of either party fully grasp the depth of the crisis, which began long before the official start of the Great Recession in December 2007.

Please read on here.

Andrew Leonard informs us that (emphasis marks added - Ed.):

Obama just can't get a break. Moments before the president was scheduled to announce a major policy shift on banking regulation, the Supreme Court handed down its ruling weakening campaign finance laws. The upshot: Corporations and unions and other entities will now, once again, be allowed to spend freely on political advertising. Can you hear the sound of media coverage shifting its attention, en masse?

But the two news events are intimately connected. If the president follows through on his promises to limit the size of financial institutions and to prevent banks from using federally insured deposits to make bets on securities, the banks will fight him with everything they've got. That much we already knew. But now the Supreme Court has handed Wall Street a huge club with which to thwack Obama or any other politician who dares to try to restrain the likes of JPMorgan and Goldman-Sachs. And you can bet they won't be shy to use it. Talk about your American tragedies. The banks have loads of money, largely because of a taxpayer bailout. Now they're going to start spending that money with a freedom they haven't enjoyed in 20 years, in order to prevent the government from making sure they don't run wild and wreck the economy again.

Read on here.

Professor and Nobel Prize-winning economist Joseph E. Stiglitz (coauthor of The Three Trillion Dollar War) declares that we are now facing (and not for the first time) a real moral bankruptcy and asks "Why are we letting Wall Street off so easy?"

You'd think we had an active interest in Wall Street's ability to continue ripping us off, wouldn't you? (Many people do.) (Emphasis marks added - Ed.)

It is said that a near-death experience forces one to reevaluate priorities and values. The global economy has just escaped a near-death experience. The crisis exposed the flaws in the prevailing economic model, but it also exposed flaws in our society. Much has been written about the foolishness of the risks that the financial sector undertook, the devastation that its institutions have brought to the economy, and the fiscal deficits that have resulted. Too little has been written about the underlying moral deficit that has been exposed — a deficit that is larger, and harder to correct.

One of the lessons of this crisis is that there is a need for collective action, that there is a role for government. But there are others. We allowed markets to blindly shape our economy, but in doing so, they also shaped our society. We should take this opportunity to ask: Are we sure that the way that they have been molding us is what we want?

We have created a society in which materialism overwhelms moral commitment, in which the rapid growth that we have achieved is not sustainable environmentally or socially, in which we do not act together to address our common needs. Market fundamentalism has eroded any sense of community and has led to rampant exploitation of unwary and unprotected individuals. There has been an erosion of trust — and not just in our financial institutions. It is not too late to close these fissures.

How the market has altered the way we think is best illustrated by attitudes toward pay. There used to be a social contract about the reasonable division of the gains that arise from acting together within the economy. Within corporations, the pay of the leader might be 10 or 20 times that of the average worker. But something happened 30 years ago, as the era of Thatcher/Reagan was ushered in. There ceased to be any sense of fairness; it was simply how much the executive could appropriate for himself. It became perfectly respectable to call it incentive pay, even when there was little relationship between pay and performance. In the finance sector, when performance is high, pay is high; but when performance is low, pay is still high. The bankers knew — or should have known — that while high leverage might generate high returns in good years, it also exposed the banks to large downside risks. But they also knew that under their contracts, this would not affect their bonuses.

What happens when reward is decoupled from risk? One cannot always distinguish between incompetence and deception, but it seems unlikely that a business claiming to have a net worth of more than $100 billion could suddenly find itself in negative territory. More likely than not, it was engaged in deceptive accounting practices. Similarly, it is hard to believe that the mortgage originators and the investment bankers didn't know that the products they were creating, purchasing, and repackaging were toxic.

Bernie Madoff crossed the line between exaggeration and fraudulent behavior. But what about Angelo Mozilo, the former head of Countrywide Financial, the nation's largest originator of subprime mortgages?

He has been charged by the SEC with securities fraud and insider trading: He privately described the mortgages he was originating as toxic, even saying that Countrywide was "flying blind," all while touting the strengths of his mortgage company, its prime quality mortgages using high underwriting standards. He eventually sold his Countrywide stock for nearly $140 million in profits. If he had kept the dirty secrets to himself, he might have been spared the charges; self-deception is no crime, nor is persuading others to share in that self-deception. The lesson for future financiers is simple: Don't share your innermost doubts.

The investment bankers would like us to believe that they were deceived by the people who sold them the mortgages. But if there was deception, they were part of it: They encouraged the mortgage originators to go into the risky subprime market, because it generated the high returns they sought. It is possible that a few bankers didn't know what they were doing, but they are guilty then of a different crime, that of misrepresentation, claiming that they knew about risk when clearly they did not.

Exaggerating the virtues of one's wares or claiming greater competency than the evidence warrants is something that one might have expected from many businesses. Far harder to forgive is the moral depravity—the financial sector's exploitation of poor and middle-class Americans. Our financial system discovered that there was money at the bottom of the pyramid and did everything possible to move it toward the top. We are still debating why the regulators didn't stop this. But shouldn't the question also have been: Didn't those engaging in these practices have any moral compunction?

Sometimes, the financial companies (and other corporations) say that it is not up to them to make the decisions about what is right and wrong. It is up to government. So long as the government hasn't banned the activity, a bank has every obligation to its shareholders to provide financial support for any activity from which it can obtain a good return. The predecessors to JPMorgan Chase helped finance slave purchases. Citibank had no qualms about staying in apartheid South Africa.

But consider, too, that the business community spends large amounts of money trying to create legislation that allows it to engage in nefarious practices. The financial sector worked hard to stop predatory lending laws, to gut state consumer protection laws, and to ensure that the federal government's ever laxer standards overrode state regulators. Their ideal scenario, it seems, is to have the kind of regulation that doesn't prevent them from doing anything, but allows them to say, in case of any problems, that they assumed everything was okay—because it was done within the law.

Securitization epitomized the process of how markets can weaken personal relationships and community. With securitization, trust has no role; the lender and the borrower have no personal relationship. Everything is anonymous, and with those whose lives are being destroyed represented as merely data, the only issues in restructuring are what is legal—what is the mortgage servicer allowed to do (see "Mortgage Shark Attack") — and what will maximize the expected return to the owners of the securities. Enmeshed in legal tangles, both lenders and borrowers suffer. Only the lawyers win.

. . . The country as a whole has been living beyond its means. There will have to be some adjustment. And someone will have to pick up the tab for the bank bailouts. With real median household income already down some 4 percent between 2000 and 2008, the brunt of the adjustment must come from those at the top who have garnered for themselves so much over the past three decades, and from the financial sector, which has imposed such high costs on the rest of society.

Read the rest here (please). (Joseph Stiglitz' new book is Freefall: America, Free Markets, and the Sinking of the World Economy. You can find it online at Powell's.) And now to that message from Massachusetts (from Eye on Miami) (even though I would argue that without Diebold counting the votes, the message would be quite a bit different) . . .

The voters of Massachusetts, who delivered a 26 percent majority to candidate Obama, have spoken: they are not a Republican majority but they sent a Republican to the US Senate yesterday. It is the one thing an election can do: send an up or down message. The message they sent is that they don't believe and they don't have confidence in the "jobless recovery".

Much of the United States, and the northeast in particular, is mired in a Depression. It may not be The Great Depression, but it is not just A Great Recession (the moniker from the NY Times). Incumbents (and the mainstream media too) have a big stake in promoting positive narratives. Dismal narratives, like the ones we are glued to on this blog, don't sell advertisement. They are not good for business. But voters can't be blamed for being sick and tired of getting less for more.

The American narrative is on its knees, notwithstanding the claims of a "recovery" (see the Miami Herald today, on Armando Codina's bright new development in Broward). While Obama, it is true, was dealt a horrendous hand of cards by his predecessor, he made a huge strategic mistake by not gathering energy around the core of the problem: the miscalculation of risk by Wall Street tied to unsustainable debt.

That is what has created the greatest wealth divide in modern US history, piled enormous debt on taxpayers, deformed politics and turned Democrats and Republicans into a Unitary Party. Does President Obama have time, now, to go back and retrieve the only theme and narrative that can save the Democrats in the 2010 mid-term elections? He better work fast, because the same political interests who profited first from debt, fraud and this terrible economic crisis have put on wigs and fake beards: they are ready to roll.

And speaking of donning wigs and fake beards . . . have you ever wondered about "Israel's Role in Terrorism?" I know I have, and I've always fancied myself a pretty well-informed supporter of Israel's right to exist.

Response of former Israeli Prime Minister Benjamin Netanyahu when asked on September 11, 2001 what the attacks meant for U.S.-Israeli relations - Game theory war-planners rely on mathematical models to anticipate and shape outcomes with staged provocations. For the agent provocateur, the reactions to a provocation — as well as the reactions to those reactions — thereby become predictable within an acceptable range of probabilities. With ongoing wars in Iraq and Afghanistan poised to expand to Iran and Pakistan, it is time to take a closer look at how conflicts are catalyzed — by way of deception.

With a well-modeled provocation, a target’s anticipated reaction can even become a weapon in the aggressor’s arsenal. In response to the provocation of 9-11, how difficult was it to foresee that the U.S. would deploy its military to avenge that attack? With U.S. intelligence “fixed” by well-placed insiders around a predetermined goal, how difficult was it to anticipate that the reaction to 9-11 could be redirected to wage war in Iraq?

The emotional component of a provocation plays a key role in game theory warfare. With the nationally televised mass murder of 3,000 people, a state of shock, grief and outrage made it easier for Americans to believe that a known Evil Doer in Iraq was responsible — regardless of the facts.

For false beliefs to displace real facts requires mental preconditioning so that a targeted population can be persuaded to put their faith in fictions. That conditioning enhances the probability of a successful deception. Those who deceived the U.S. to invade Iraq in March 2003 began a decade beforehand to lay the “mental threads” and make the requisite mental associations to advance that agenda.

Thus, the reason I was able to point out immediately to my students that something was "not right" about that attack and its aftermath.

Suzan ________________