Wednesday, March 17, 2010

Secret Gov't: "Calculated dishonesty by people in charge is at the heart of most large corporate failures" - Bill Moyers & "Recovery a Sham" - Reich

Éireann go Brách!

Bill Moyers is outraged, and now that his Bill Moyers Journal has been replaced on PBS with a nonprogressive program, I want you to know that it is his heartfelt belief that "this economic and financial meltdown is driven by fraud."

He interviewed Bill Black, who knows almost everything about what went on (William K. Black is an Associate Professor of Economics and Law at the University of Missouri; the Executive Director of the Institute for Fraud Prevention from 2005-2007, who has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics, as well as litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and General Counsel of the Federal Home Loan Bank of San Francisco, and Senior Deputy Chief Counsel, Office of Thrift Supervision; deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement), and asked him "What is your definition of fraud?"

"Fraud is deceit - and the essence of fraud (for the top elites) is: I create trust in you (and I betray that trust) and get you to give me something of value," answered Professor Black. Black then goes into gut-wrenching detail about how the CEO's and top officers of the corporations could operate with impunity after the deregulation of the Bush/Cheney years. Moyers asks "In your book you make it clear that calculated dishonesty by people in charge is at the heart of most large corporate failures and scandals, including of course, the S&L's . . . is that what you're saying here . . . that it was in the board rooms and CEO offices where this fraud begins?" "Absolutely," said Black firmly. IndyMac in 2006 alone sold $80 billion dollars of "Liars Loans" to other companies. The verification process was gutted by these criminals who knew exactly what they were doing: "nothing exotic about it."

When I, myself, viewed Paulson's sob story on teh TV in September/October of 2008, I remember thinking at the time "How could the CEO of Goldman Sachs (not to mention U.S. Treasury Secretary) not know where every penny of interest was coming from? How possibly could any of this wild tale be true?" Also, how could no one in the coven of surrounding wide-mouthed reporters not be asking any sharp questions?

"The lending company created a fraud, and the ratings agency that is supposed to test the value of these assets knowingly entered into the fraud; both parties are committing fraud by intention." "Right - and the investment banker, we call it pooling . . . creates the toxic waste of these derivatives . . . and then they sell it to the world, and the world thinks because it has a AAA rating it must actually be safe. Instead there are 60 to 80% losses on these things." "It's a systemic ponzi scheme. (Emphasis marks added - Ed.) ____

Bill Moyers on The Economic Elite Vs. The People of the United States [Video & Audio]

When you are one of the 180 million Americans now living paycheck-to-paycheck, and you are working 12 - 14 hours a day, six days a week, you have to constantly ask yourself, “Is what I’m doing the most effective way to use my time?” When it comes to my work here on AmpedStatus, I’m putting more money into it than I’m getting out of it. So, even with the impact and success I’ve been having with recent reports, my mind still questions if I would be better off working on other, more financially rewarding projects. As each month passes, and the bills keep coming, your will and resolve are tested with increased intensity. When people take time out of their busy schedules to write emails and donate some of their hard-earned money, and when the bad news just keeps piling up with no substantial government actions to combat it, you realize that you must find it within yourself to keep fighting. In the long run, unfortunately, there is really no other option for us. We have been attacked, a war has been launched on us, even though most people are yet to realize this. My frustration and cynicism is quickly overwhelmed by my survival instinct. As part of this, I must always question my methods and try to figure out how to be most effective. So when someone like Bill Moyers comes along, and quotes your work, you, for a moment, feel a sense of success. Maybe all the hard work is having an affect and paying off, maybe I am getting through to people. Perhaps it is just my need for some kind of validation, in the face of such a difficult battle, but Bill Moyers has meant a great deal to me over the years. I remember being in middle school, in 1987, and coming across a PBS television show that shocked my young and naïve mind. It was called “The Secret Government: The Constitution In Crisis,” and a man named Bill Moyers gave me my first lesson in how power really works in this country and throughout the world. I began to get very interested in these deeper political issues that Mr. Moyers revealed, so I closely followed his work on the Iran-Contra scandal and the Savings & Loan crisis. At that time, Bill taught me things I could have never learned in my public schooling or through the network news programs that dominated public consciousness. (Keep in mind, the Internet wasn’t even around back then!) So there was much to learn from Mr. Moyers in the late 1980s, just as there is today. The most important thing he taught me was to always be critical of those with power, to always question and probe below the surface of popular opinion. And I heeded his advice. While my friends and classmates dutifully read their history books and memorized names and dates, I spent my time at the local library looking for books that offered an alternative viewpoint to textbooks that seemed so black-and-white and lacked the depth and critical thoughts that Mr. Moyers made clear were necessary to be an informed citizen, to be a guardian of freedom and democracy. I took these things very seriously as a kid. Both of my grandfathers fought in World War II, and the person for whom I am named, my grandfather’s brother, died during the war fighting for freedom and democracy. One of my most cherished possessions is the US flag that was folded into a triangle and presented to my family at my Uncle’s memorial service. I was instilled with a deep understanding that freedom was not free and you must stay vigilant if democracy is to be preserved. So I was very thankful that Mr. Moyers taught me how to look deeper into the power-addicted forces within human nature that are often behind the scenes conspiring against free people - always looking to gain power from us for their own greedy purposes.

Though it may sound like a dark view to some, this is the reality of the world, a reality my grandparent’s generation knew based on first-hand experience. A reality that has been obscured by an all-pervasive distraction-based, profit-seeking mainstream media system that has created two generations of dangerously naïve people. We have forgotten the lessons of our elders. My grandparents were born into the Great Depression, an era of Robber Barons and massive income inequality. They had to fight through poverty and a World War. And when the war was over, the battle-tested American public joined together and created a prosperous middle class which blossomed into the greatest super-power this world has ever known. But as the generations passed, we became complacent. We stopped paying attention to politics. Our free and open society was then easily corrupted by those same power and greed-addicted forces that we once fought off. We ignored politics, as the richest members of the world began to dominate both political parties and take over our country - economically and militarily.

As President Eisenhower warned, a grave danger to our future would become an unchecked military industrial complex, now represented in a private and covert military that in many ways is more powerful than our own citizen military. Along with this, the Robber Barons have returned, stronger than ever. The income inequality between the richest one percent and the remaining 99 percent of our country is the highest it has ever been. When you ignore the lessons of the past, they have a horrifying way of coming back to haunt you.

As Bill Moyers said in 1987, at the end of his Report on the Secret Government: “Can it happen again? You bet it can. . . . This is a system easily corrupted as the public grows indifferent again, and the press is seduced or distracted. So one day, sadly, we are likely to discover once again that while freedom does have enemies in the world, it can also be undermined here at home, in the dark, by those posing as its friends.”

Unfortunately, Bill hit the nail on the head. In many ways, we are right back to where our grandparents started. Fast forward to our current crisis, and Bill Moyers still, as always, remains ever so aware and present in our national consciousness. It was almost exactly one year ago when Bill Moyers invited William Black, a world renowned white-collar criminologist, to speak with him on his TV show about the outright fraud and theft of our money. As Bill so eloquently and boldly summed it up, “For months now, revelations of the wholesale greed and blatant transgressions of Wall Street have reminded us that ‘The Best Way to Rob a Bank Is to Own One.’” Bill gave us a revealing and much needed look into the systemic criminal underpinnings of our economic structure. On March 1st, Bill gave his first public speech in three years, as the final speaker in the Dowmel Lecture series. In the speech, Bill, who once served as President Lyndon Johnson’s chief-of-staff, press secretary and speechwriter, choose to address what he feels is “the greatest threat” to our country: the staggering inequality of wealth and the death of the middle class.

He spoke, as always, in clear and concise language:

“This is my fear… at the end of my long career in journalism.… The isolation of the poor, the plight of a failing middle class, the crumbling of our infrastructure. The reckless disregard for our fiscal affairs and the hijacking of our political process by big money. All tear at the social compact that forge the American consciousness. . . .

We have come to a critical moment in the long fashioning of a democratic people . . . . America’s wealth is becoming ever more concentrated . . . . concentration of wealth goes hand-in-hand with concentration of power. You don’t have to be a conspiracy theorist to see how its great wealth buys off Washington and turns our watchdogs into lapdogs. You just have to be a good journalist and connect the dots . . . . The freedoms and rights we cherish were not sent from heaven and do not grow on trees. They were born by centuries of struggle by millions who fought, bled and died… to protect ordinary people from being overrun by massive corporations, to win a safety-net against the sometimes cruel workings of the market. . . . Here is the lesson we must never forget . . . Democracy only works when people claim it as their own . . . .”

Once again, we owe Bill Moyers thanks for his immense contribution to the understanding, betterment and well-being of our nation. To have him cite my work is truly an honor and an inspiration that will help sustain me through the long days and nights spent researching, writing, communicating and fighting for our democracy, freedom and future.

Bill’s speech is an hour long and well worth your time.You can listen to it here.

"George Akerlof called his book, The Best Way to Rob a Bank is to Own One (University of Texas Press 2005), 'a classic.' Paul Volcker praised its analysis of the critical role of Bank Board Chairman Gray’s leadership in reregulating and resupervising the industry:

Bill Black has detailed an alarming story about financial - and political - corruption. The specifics go back twenty years, but the lessons are as fresh as the morning newspaper. One of those lessons really sticks out: one brave man with a conscience could stand up for us all."

Robert Kuttner, in his Business Week column, proclaimed:

Black's book is partly the definitive history of the savings-and-loan industry scandals of the early 1980s. More important, it is a general theory of how dishonest CEOs, crony directors, and corrupt middlemen can systematically defeat market discipline and conceal deliberate fraud for a long time - enough to create massive damage.
"Black developed the concept of 'control fraud' – frauds in which the CEO or head of state uses the entity as a 'weapon.' Control frauds cause greater financial losses than all other forms of property crime combined and kill and maim thousands. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae’s former senior management. He teaches White-Collar Crime, Public Finance, Antitrust, Law & Economics (all joint, multidisciplinary classes for economics and law students), and Latin American Development (co-taught with Professor Grieco, UMKC – History)."

Bill Black's "regulatory career is profiled in Chapter 2 of Professor Riccucci's book Unsung Heroes (Georgetown University Press: 1995), Chapter 4 (“The Consummate Professional: Creating Leadership”) of Professor Bowman, et al.’s book The Professional Edge (M.E. Sharpe 2004), and Joseph M. Tonon’s article: “The Costs of Speaking Truth to Power: How Professionalism Facilitates Credible Communication” Journal of Public Administration Research and Theory 2008 18(2):275-295."

Before we get to Robert Reich's warning (and its reality is everywhere so it's hardly a secret from us), I'd like to say a word for the work of Yves Smith and her latest book, ECONned. As a sometimes-economist myself, it's a hard judgment on what we've had passing for such the last 30 years, but don't let that stop you from getting a copy quickly and starting to imbibe. I read her almost every day (she is so funny as well as serious as a deathwatch), and once you get acquainted with her intelligent analysis, I'll bet you will too.

Ms. Smith (a pseudonym) is a dynamic and insightful Financial Services Industry veteran who writes and edits the influential financial blog Naked Capitalism and who has recently authored a book on the roots of the financial crisis titled Econned.

Herein follows a part of an interview with Ms. Smith. (Emphasis marks added - Ed.)

Yves Smith: The focus initially is on the Economists . . . and the argument is that the Crisis is actually rooted in bad economic theory. Translation: Milton Friedman was a shill. They have been feeding us bullshit since this started in the 70s. It became a massively bigger pile of bullshit in the Reagan years. We are now at the pinnacle of the Himalayas of bullshit. Domestically speaking, we’re at the summit of the Mount freakin’ McKinley of bullshit. Yves Smith: What undergirds all of economic theory right now is the presumption of equilibrium.

Translation: Economist, schmonomist; It’s all bullshit. (Editor’s note -we just LOVE it here when Yves says ‘ u n d e r g i r d s ’. That is SO HOT!) Yves Smith: Financial markets have no propensity to equilibrium. They fundamentally have a predisposition to boom-bust cycles. Translation: Financial bullshit always hits the fan. Yves Smith: By contrast, if you assume stability, that means that all you have to worry about is efficiency. And all the moves that we have had, that have had the effect of increasing efficiency, have increased riskiness. Translation: They buried us in bullshit, took all of our money, pissed on us and then turned on a ginormous fan. It’s an unbelievable mess, it’s still blowing and we’re too broke to clean it up. Yves Smith: People now are becoming increasingly aware of the fact of how much the Obama team, not just philosophically but from a practical standpoint, is hostage to the financial services industry. Translation: For the first time in history, B.O. and B.S. are synonymous. Yves Smith: Well the notion that you’ve got a group that has so much influence over policy and yet they’ve wrapped it in a scientific mantle which makes it immune to criticism by normal people . . . . Translation: It’s all a bunch of bullshit. And then they wrapped it and put it over your fireplace. (Editor’s note – we’re not sure if we’ve got this translation quite right. Sometimes even we struggle over some of the brilliant utterances emanating from Ms. Smith. But we are positive about the ‘bullshit’ part.) Yves Smith: We’ve basically run-out a paradigm that couldn’t last forever . . . in fact it was a paradigm that was inherently self-limiting.” Translation: The party is officially over. Welcome to future generations spent deeply immersed in bullshit soup. (Editor’s note – observe the double-pump use of ‘paradigm’ in the passage. AWESOME!) Yves Smith: You’ve got to look at the frame that we’ve had from the 1930s onward. Translation: They got it right after the ‘30s. We’ve got it wrong. This is some serious bullshit. Yves Smith: The belief we’ve had in deregulation, and you can argue its benefits to the goods markets . . . that’s a different kettle of fish, but in financial markets its led to increased concentration, because markets have strong network effects, and also a shift in the structure of the industry away from businesses that had a very safe fee income to ones that are increasingly dominated by trading.

Translation: Felix, in answer to your point, let me say the following: bullshit, bullshit, bullshit, bullshit, bullshit, bullshit and bullshit. Now let’s go have some fish, split a couple bottles of vino and talk about the goods markets. You’ve got the goods. And I’ve got your market r i g h t h e r e. . . . Yves Smith: To say that economists didn’t play an important role is just counterfactual. Translation: Felix, you lying little minx! Why don’t you put on those nerdy little glasses of yours and come on over here and sit on momma’s lap. I’ll show you what I can do with your Laffer Curve . . . .

I alluded to the fact that she is not the run-of-the-grind economist.

Robert Reich (who already owns most of the "short" jokes) has always been a favorite legal eagle/management/public policy guru of mine (and I've finally forgiven him for that date with Hillary in college). Hope you'll read his serious take on teh "Recovery." (Here's where you really feel the effects of NAFTA.) (Emphasis marks added - Ed.)

The Sham Recovery
By Robert Reich, Robert Reichs Blog

12 March 2010 Are we finally in a recovery? Who's "we," kemosabe? Big global companies, Wall Street, and high-income Americans who hold their savings in financial instruments are clearly doing better. As to the rest of us - small businesses along Main Streets, and middle and lower-income Americans - forget it.

Business cheerleaders naturally want to emphasize the positive. They assume the economy runs on optimism and that if average consumers think the economy is getting better, they'll empty their wallets more readily and - presto! - the economy will get better. The cheerleaders fail to understand that regardless of how people feel, they won't spend if they don't have the money. The US economy grew at a 5.9 percent annual rate in the fourth quarter of 2009. That sounds good until you realize GDP figures are badly distorted by structural changes in the economy. For example, part of the increase is due to rising health care costs. When WellPoint ratchets up premiums, that enlarges the GDP. But you'd have to be out of your mind to consider this evidence of a recovery.

Part of the perceived growth in GDP is due to rising government expenditures. But this is smoke and mirrors. The stimulus is reaching its peak and will be smaller in months to come. And a bigger federal debt eventually has to be repaid.

So when you hear some economists say the current recovery is following the traditional path, don't believe a word. The path itself is being used to construct the GDP data.

Look more closely and the only ones doing better are the people and private-sector institutions at the top. Many of America's biggest companies are sitting on huge amounts of cash right now, but that says nothing about the health of the U.S. economy. Companies in the Standard&Poor 500 stock index had sales of $2.18 trillion in the fourth quarter, up from $2.02 trillion last year, and their earnings tripled. Why? Mainly because they're global, and selling into fast-growing markets in places like India, China, and Brazil.

America's biggest companies are also showing fat profits and productivity gains because they continue to slash payrolls and cut expenditures. Alcoa, for example, had $1.5 billion in cash at the end of last year, double what it had on hand at the end of 2008. Sounds terrific until you realize how it did it. By cutting 28,000 jobs - 32 percent of workforce - and slashed capital expenditures 43 percent.

Firms in S&P 500 are now holding a whopping $932 billion in cash and short-term investments. And they can borrow money cheaply. Corporate bond sales are brisk. So far in 2010, big U.S. corporations have issued $195.2 billion of debt, excluding government-guaranteed bonds. Does this spell a recovery? It all depends on what the big companies are doing with all this cash. In fact, they're doing two things that don't help at all.

First, they're buying other companies. (Walgreen last month spent $618 million for New York drugstore chain Duane Reade; Bank of New York Mellon, $2.3 billion for PNC Financial Services; Monster, $225 million for Jobs.com; Diamond Foods, $615 million for Kettle Foods.) This buying doesn't create new jobs. One of the first things companies do when they buy other companies is fire lots of people who are considered "redundant." That's where the so-called merger efficiencies and synergies come from, after all.

The second thing big companies are doing with all their cash is buying back their own stock, in order to boost their share prices. There were 62 such share buy-backs in February, valued at $40.1 billion. We're witnessing the biggest share buyback spree since Sept 2008. The major beneficiaries are current shareholders, including top executives, whose pay is linked to share prices. The buy-backs do absolutely nothing for most Americans.

(None of this, by the way, is stopping supply-side fanatics from arguing government needs to cut taxes on big corporations in order to spur the recovery. Their argument is absurd on its face. Big companies don't know what to do with all their cash they have as it is. They aren't investing it in new plant and equipment and new jobs. So why should the government cut their taxes and enlarge their cash hoards even more?)

The picture on Main Street is quite the opposite. Small businesses aren't selling much because they have to rely on American - rather than foreign - consumers, and Americans still aren't buying much.

Small businesses are also finding it difficult to get credit. In the credit survey conducted in February by the National Federation of Independent Businesses, only 34 percent of small businesses reported normal and adequate access to credit. Not incidentally, the NFIB's "Small Business Optimism Index" fell 1.3 points last month, just about where it's been since April.

That's a problem for most Americans. Small businesses are where the jobs are. In fact, small businesses are responsible for almost all job growth in a typical recovery. So if small businesses are hurting, we're not going to see much job growth any time soon.

The Federal Reserve reported Thursday that American consumers are shedding their debts like mad. Total US household debt, including mortgages and credit card balances, fell 1.7 percent last year - the first drop since the government began recording consumer debt in 1945. Much of the debt-shedding has been through default - consumers simply not repaying and walking away from homes and big-ticket purchases.

This is hardly good news. But here's the Wall Street Journal's take on it:

"the defaults are leaving many people with more cash to spend and save, jump-starting the financial rehabilitation" of the economy.

Baloney. As of end of 2009, debt averaged $43, 874 per American, or about 122 percent of annual disposable income. Most economic analysts think a sustainable debt load is around 100 percent of disposable income - assuming a normal level of employment and normal access to credit. But unemployment is still sky-high and it's becoming harder for most people to get new mortgages and credit cards. And with housing prices still in the doldrums, they can't refinance their homes or take out new loans on them. The days of homes as ATMs are over.

Some cheerleaders say rising stock prices make consumers feel wealthier and therefore readier to spend. But to the extent most Americans have any assets at all their net worth is mostly in their homes, and those homes are still worth less than they were in 2007. The "wealth effect" is relevant mainly to the richest 10 percent of Americans, most of whose net worth is in stocks and bonds. The top 10 percent accounted for about half of total national income in 2007. But they were only about 40 percent of total spending, and a sustainable recovery can't be based on the top ten percent.

Add to all this the joblessness or fear of it that continues to haunt a large portion of the American population. Add in the trauma of what most of us have been through over the past year and a half. Consider also the extra need to save as tens of millions of boomers see retirement on the horizon. Bottom line: Thrifty consumers are doing the right and sensible thing by holding back from the malls. They saved a little over 4 percent of their disposable income in fourth quarter of 2009. In the months or years ahead they may save more.

Right and sensible for each household but a disaster for the economy as a whole. American consumers accounted for 70 percent of the total demand for goods and services in the American economy before the Great Recession, and a sizable chunk of world demand.

So what happens when the stimulus is over and the Fed begins to tighten again? Where will demand come from to get Main Street back, create jobs, raise middle class wages? Not from big businesses. Certainly not from Wall Street. Not from exports. Not from government.

So, where? That question is the big unknown hanging over the U.S. economy. Until there's an answer, an economic "recovery" for anyone other than big corporations, Wall Street, and the wealthy is a mirage.

(Robert Reich is Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as Secretary of Labor under President Bill Clinton. He has written twelve books, including "The Work of Nations," "Locked in the Cabinet," and his most recent book, "Supercapitalism." His "Marketplace" commentaries can be found on publicradio.com and iTunes.)

Lots of food for thought.

And action?

Suzan _______________

4 comments:

RealityZone said...

Great post:

Default, new currency. This will eventually be their only way out. America is no longer in charge of their own currency. We have not been since the International Money Changers came to the Fed.
The emerging economies will now dictate what happens to the greenback. There is no longer any justification for having the $$$$ as the global reserve currency. The question is. What will replace it? I see a basket of currencies, and commodities.
What will our contribution be to that basket?
Kissinger is in China, I am sure Soros will be going next.

Suzan said...

Yah yah, baby.

But who wants to think about that now? Especially when we have the dire concerns about the (fraudulent) "no-insurance" reform of health-care insurance bill to worry about and take our minds off of our real cares.

I, myself, was thinking about it ("Default, new currency") oh, along about the time of Bush/Paulson's announcement that they were taking everything with them when they left (Sept/Oct 2008).

And they did.

They had known the end game since the late 60's when LBJ got snockered into thinking he could have both guns and butter without having any idea where the debt levels would then head.

Thanks for commenting.

S

America is no longer in charge of their own currency. We have not been since the International Money Changers came to the Fed.
__________

Terry said...

Shit! Where shall I find the time to read this post? I demand more time!

I'll be back.

And I'm bringing my own currency.

Suzan said...

You got it, buddy!

Take some of mine.

S

I demand more time!
_________________