The Expiring Economy & "Six Reasons Why Granting the Fed Even More Power is a Really Bad Idea"

Paul Craig Roberts believes our economy is expiring. Really. Read on. (Emphasis marks added - Ed.)

Tent cities springing up all over America are filling with the homeless unemployed from the worst economy since the 1930s. While Americans live in tents, the Obama government has embarked on a $1 billion crash program to build a mega-embassy in Islamabad, Pakistan, to rival the one the Bush government build in Baghdad, Iraq.

Hard times have now afflicted Americans for so long that even the extension of unemployment benefits from 6 months to 18 months for 24 high unemployment states, and to 46 - 72 weeks in other states, is beginning to run out. By Christmas 1.5 million Americans will have exhausted unemployment benefits while unemployment rolls continue to rise.

Amidst this worsening economic crisis, the House of Representatives just passed a $636 billion “defense” bill.

Who is the United States defending against? Americans have no enemies except those that the US government goes out of its way to create by bombing and invading countries that comprise no threat whatsoever to the US and by encircling others - Russia for example - with threatening military bases.

America’s wars are contrived affairs to serve the money laundering machine: from the taxpayers and money borrowed from foreign creditors to the armaments industry to the political contributions that ensure $636 billion “defense” bills.

President George W. Bush gave us wars in Iraq and Afghanistan that are entirely based on lies and misrepresentations. But Obama has done Bush one better. Obama has started a war in Pakistan with no explanation whatsoever.

If the armaments industry and the neoconservative brownshirts have their way, the US will also be at war with Iran, Russia, Sudan and North Korea.

Meanwhile, America continues to be overrun, as it has been for decades, not by armed foreign enemies but by illegal immigrants across America’s porous and undefended borders.

It is more proof of the Orwellian time in which we live that $636 billion appropriated for wars of aggression is called a “defense bill.”

Who is going to pay for all of this? When foreign countries have spent their trade surpluses and have no more dollars to recycle into the purchase of Treasury bonds, when US banks have used up their “bailout” money by purchasing Treasury bonds, and when the Federal Reserve cannot print any more money to keep the government going without pushing up inflation and interest rates, the taxpayer will be all that is left. Already Obama’s two top economic advisors, Treasury Secretary Timothy Geithner and director of the National Economic Council Larry Summers, are floating the prospect of a middle class tax increase. Will Obama be maneuvered away from his promise just as Bush Sr. was?

Will Americans see the disconnect between their interests and the interests of “their” government? In the small town of Vassalboro, Maine, a few topless waitress jobs in a coffee house drew 150 applicants. Women in this small town are so desperate for jobs that they are reduced to undressing for their neighbors’ amusement.

Meanwhile, the Obama government is going to straighten out Afghanistan and Pakistan and build marble palaces to awe the locals half way around the world.

The US government keeps hyping “recovery” the way Bush hyped “terrorist threat” and “weapons of mass destruction.” The recovery is no more real than the threats. Indeed, it is possible that the economic collapse has hardly begun. Let’s look at what might await us here at home while the US government pursues hegemony abroad.

The real estate crisis is not over. More home foreclosures await as unemployment rises and unemployment benefits are exhausted. The commercial real estate crisis is yet to hit. More bailouts are coming, and they will have to be financed by more debt or money creation. If there are not sufficient purchasers for the Treasury bonds, the Federal Reserve will have to purchase them by creating checking accounts for the Treasury, that is, by debt monetization or the printing of money.

More debt and money creation will put more pressure on the US dollar’s exchange value. At some point import prices, which include offshored goods and services of US corporations, will rise, adding to the inflation fueled by domestic money creation. The Federal Reserve will be unable to hold down interest rates by buying bonds.

No part of US economic policy addresses the systemic crisis in American incomes. For most Americans real income ceased to grow some years ago. Americans have substituted second jobs and debt accumulation for the missing growth in real wages. With most households maxed out on debt and jobs disappearing, these substitutes for real income growth no longer exist.

The Bush-Obama economic policy actually worsens the systemic crisis that the US dollar faces as reserve currency. The fact that there might be no alternative to the dollar as reserve currency does not guarantee that the dollar will continue in this role. Countries might find it less risky to settle trade transactions in their own currencies.

How does an economy based heavily on consumer spending recover when so many high-value-added jobs, and the GDP and payroll tax revenues associated with them, have been moved offshore and when consumers have no more assets to leverage in order to increase their spending?

How does the US pay for its imports if the dollar is no longer used as reserve currency? These are the unanswered questions.

Our brilliant economist friend, Bill Greider has written a must-read essay on Dismantling the Temple and "Six Reasons Why Granting the Fed Even More Power is a Really Bad Idea." (Emphasis marks added - Ed.)

1. It would reward failure. Like the largest banks that have been bailed out, the Fed was a co-author of the destruction. During the past twenty-five years, it failed to protect the country against reckless banking and finance adventures. It also failed in its most basic function - moderating the expansion of credit to keep it in balance with economic growth. The Fed instead allowed, even encouraged, the explosion of debt and inflation of financial assets that have now collapsed. The central bank was derelict in enforcing regulations and led cheers for dismantling them. Above all, the Fed did not see this disaster coming, or so it claims. It certainly did nothing to warn people.

2. Cumulatively, Fed policy was a central force in destabilizing the US economy. Its extreme swings in monetary policy, combined with utter disregard for timely regulatory enforcement, steadily shifted economic rewards away from the real economy of production, work and wages and toward the financial realm, where profits and incomes were wildly inflated by false valuations. Abandoning its role as neutral arbitrator, the Fed tilted in favor of capital over labor. The institution was remolded to conform with the right-wing market doctrine of chairman Alan Greenspan, and it was blinded to reality by his ideology (see my Nation article "The One-Eyed Chairman," September 19, 2005).

3. The Fed cannot possibly examine "systemic risk" objectively because it helped to create the very structural flaws that led to breakdown. The Fed served as midwife to Citigroup, the failed conglomerate now on government life support. Greenspan unilaterally authorized this new financial/banking combine in the 1990s - even before Congress had repealed the Glass-Steagall Act, which prohibited such mergers. Now the Fed keeps Citigroup alive with a $300 billion loan guarantee. The central bank, in other words, is deeply invested in protecting the banking behemoths that it promoted, if only to cover its own mistakes.

4. The Fed can't be trusted to defend the public in its private deal-making with bank executives. The numerous revelations of collusion have shocked the public, and more scandals are certain if Congress conducts a thorough investigation. When Treasury Secretary Timothy Geithner was president of the New York Fed, he supervised the demise of Bear Stearns with a sweet deal for JPMorgan Chase, which took over the failed brokerage - $30 billion to cover any losses. Geithner was negotiating with Morgan Chase CEO and New York Fed board member Jamie Dimon. Goldman Sachs CEO Lloyd Blankfein got similar solicitude when the Fed bailed out insurance giant AIG, a Goldman counterparty: a side-door payout of $13 billion. The new president at the New York Fed, William Dudley, is another Goldman man.

5. Instead of disowning the notorious policy of "too big to fail," the Fed will be bound to embrace the doctrine more explicitly as "systemic risk" regulator. A new superclass of forty or fifty financial giants will emerge as the born-again "money trust" that citizens railed against 100 years ago. But this time, it will be armed with a permanent line of credit from Washington. The Fed, having restored and consolidated the battered Wall Street club, will doubtless also shield a few of the largest industrial-financial corporations, like General Electric (whose CEO also sits on the New York Fed board). Whatever officials may claim, financial-market investors will understand that these mammoth institutions are insured against failure. Everyone else gets to experience capitalism in the raw.

6. This road leads to the corporate state - a fusion of private and public power, a privileged club that dominates everything else from the top down. This will likely foster even greater concentration of financial power, since any large company left out of the protected class will want to join by growing larger and acquiring the banking elements needed to qualify. Most enterprises in banking and commerce will compete with the big boys at greater disadvantage, vulnerable to predatory power plays the Fed has implicitly blessed. Whatever good intentions the central bank enunciates, it will be deeply conflicted in its actions, always pulled in opposite directions. If the Fed tries to curb the growth of the megabanks or prohibit their reckless practices, it will be accused of damaging profitability and thus threatening the stability of the system. If it allows overconfident bankers to wander again into dangerous territory, it will be blamed for creating the mess and stuck with cleaning it up. Obama's reform might prevail in the short run. The biggest banks, after all, will be lobbying alongside him in favor of the Fed, and Congress may not have the backbone to resist. The Fed, however, is sure to remain in the cross hairs. Too many different interests will be damaged - thousands of smaller banks, all the companies left out of the club, organized labor, consumers and other sectors, not to mention libertarian conservatives like Texas Representative Ron Paul. They will recognize that the "money trust" once again has its boot on their neck, and that this time the government arranged it.

Suzan ___________________________

Rahm Emanuel and Jamie Dimon "Hold Sway" in D.C. (You? Not So Much)

Can we dare to "look away" (from the financial destruction wrought on the lower classes)? It's nice to have friends in the right places. Don't you agree? And to have your whining (to them) pay off so richly. (It's really unfair that outsiders think they have a stake in this country's financial sector.) Driftglass: Chicago Operatives Alert!

I've said this before (all right, not exactly this, but I'm not the writer that David Michael Green is), and DMG says it much, much more definitively here. (And you didn't think President Obama had a favorite banker!) I'm running this essay in its entirety because no one wants to read an article from the Business section of the NYT anymore. Okay, I do, but no one else will admit to it. (Emphasis marks added - Ed.)

If the Democrats are given four years to govern and they adopt half-measure after Milquetoast point-four-three-rounded-up-to-half-measure – all to little or no effect – then there will be a little surprise in November of 2012. If they fail to produce a robust economy, or if they end the recession but produce a jobless recovery, it’s not gonna go the way it looked after last November. If they fail to use the bully pulpit to sell good ideas and aggressively discredit the disastrously failed ones, there’s gonna be a different script three years from now, no matter how good a speech Obama gives.

Normally, I’d put Sarah Palin down as an easy shot for the nomination but a long shot for winning the general election. But if the Democrats do all the stupid things listed above, then the battle for the Republican nomination will wind up being be the actual contest, with the victor in that race easily beating the incumbent president who failed to produce a recovery or vanquish the bankrupt ideas of those who made the mess in the first place.

But who could be stupid enough to allow them to do that?

Can you say “Barack Obama”?

Jamie Di(a)mon(d)! The name almost sings with promise, doesn't it? It did anyway. And somehow, still does - seductively serpentine (over and over). Jamie Dimon is the name. JPMorganChaseGovernmentSex is the game. And I think it's hilarious that Tim Geithner says he's worried about how his past associations will be perceived. (Please excuse the emphasis marks, which I've added; somehow they seem necessary - Ed.)

WASHINGTON — Jamie Dimon, the head of JPMorgan Chase, will hold a meeting of his board here in the nation’s capital for the first time on Monday, with a special guest expected: the White House chief of staff, Rahm Emanuel. Mr. Emanuel’s appearance would underscore the pull of Mr. Dimon, who amid the disgrace of his industry has emerged as President Obama’s favorite banker, and in turn, the envy of his Wall Street rivals. It also reflects a good return on what Mr. Dimon has labeled his company’s “seventh line of business” — government relations.

The business of better influencing Washington, begun in late 2007, was jump-started just as the financial crisis hit and the capital displaced New York as the nation’s money center. Then Mr. Obama’s election brought to power Chicago Democrats well-known to Mr. Dimon from his recent years running a bank there. One of them is Mr. Emanuel, who has accepted the invitation to speak to the board pending a review by the White House counsel. The Treasury secretary, Timothy F. Geithner, declined out of concern that he would be seen as too cozy with a company that has numerous business issues before the department, an administration official said. “It’s a very nice thing for the board to have happen,” said the chief of a major financial company. “But you’d have to have a lot of influence to pull it off.”Mr. Dimon and his company enjoy a prominence in the city’s K Street lobbying world that parallels their recent rise on Wall Street; JPMorgan went into the crisis stronger than most rivals and reported robust quarterly gains last week that confirmed its place at the top of the heap. With the crisis, Mr. Dimon, a longtime Democratic donor, has become even more politically engaged, in the process becoming perhaps the most credible voice of a discredited industry. Other onetime giants like Citigroup and Bank of America find themselves muted as wards of the state. JPMorgan gave back its bailout money quickly, though like all the country’s big banks it still benefits from government loan guarantees and lending facilities. He is “one of the few Democratic C.E.O.’s in that line of work,” said Representative Barney Frank, the Massachusetts Democrat who heads the House banking committee. “And look, he’s been less impaired by failure than some of the others, so that’s given him a kind of lead role.”

Mr. Dimon, JPMorgan’s chairman and chief executive, comes to Washington about twice a month, compared with maybe twice a year in the past. He requires senior managers to commute as well. In recent months, he has met with officials including Mr. Geithner; the White House economic adviser, Lawrence H. Summers; and lawmakers of both parties. He phones or e-mails Mr. Emanuel at whim. Each week, his staff gives him the names of a half-dozen public officials to call.

“It’s got to be a regular thing. You’ve got to have a few relations where people know and trust you; you can be an honest broker,” Mr. Dimon said in an interview. “You can’t just fight everything.” While he has been quick to criticize the administration, JPMorgan has chosen its fights carefully, viewing his activism as a good investment, particularly as the government considers a historic rewrite of financial rules. Mr. Obama has singled out Mr. Dimon for praise more than once. Yet some Democrats say Mr. Dimon can be too outspoken, and deaf to the anti-bank sentiment of the country. When he complained in a March speech about Washington’s vilification of Wall Street, more than 40 House Democrats shot off a protest letter. “That was nonsense,” Mr. Frank said. Yet Mr. Dimon helped persuade Mr. Frank and Congress to ease the terms for banks, allowing JPMorgan to repay $25 billion in bailout money from the Troubled Asset Relief Program, known as TARP. He did so by complaining publicly and privately that JPMorgan only reluctantly took the money last year from the Bush administration to avoid stigmatizing more needy banks, and now was being hit with new limits — on hiring skilled foreigners, executive pay and more. JPMorgan and the industry lost when a pro-consumer credit card bill became law. But it beat back a proposal to allow bankruptcy judges to lower the amount homeowners owe on mortgages. That victory came with a cost: JPMorgan angered Republicans by negotiating with Democrats and then enraged some Democrats when those talks collapsed. But Mr. Dimon and JPMorgan are willing to bear such defeats if it translates into victory on the broader financial regulation fight that is just beginning. A centerpiece of that effort involves regulating the market for derivatives, which Mr. Dimon’s firm dominates. While JPMorgan favors new reporting requirements for the complex financial instruments, it opposes the administration proposal to force trades onto public exchanges; doing so would likely cut into the firm’s lucrative business of selling clients custom-made instruments. Like other banks, it also opposes a new consumer agency for financial products.

Meanwhile, the company’s reputation could be tarnished by investigations into the crisis. Among them, JPMorgan is under scrutiny from the Justice Department and the Securities and Exchange Commission for possible antitrust and securities law violations, including derivatives deals with local governments.

As he comes into these battles, Mr. Dimon, 53, must relish his and his company’s hard-won status in both Washington and New York: For years, such pre-eminence was widely accorded to Citigroup, the financial supermarket that he helped build, and to Citigroup’s former chief, Sanford I. Weill, who was Mr. Dimon’s mentor and famously fired his protégé in 1998.

Mr. Dimon’s midcareer exile took him from his native New York to Chicago. There he rebuilt his career, reviving BankOne and merging it with JPMorgan in 2004 before returning to New York full time in 2007. In Chicago, he got to know the fast-rising Mr. Obama and his friends.

Mr. Dimon and Mr. Geithner know each other well from the Federal Reserve Bank of New York, where Mr. Geithner was president and, as such, a JPMorgan regulator. Mr. Dimon sits on the New York Fed’s board. The two men spent untold hours negotiating in 2008 when the government enlisted JPMorgan to buy some of Bear Stearns’s assets and Washington Mutual to prevent their collapse. Mr. Dimon said the two had spoken by phone perhaps 10 times this year.

A recent conversation involved their impasse over the warrants the government received from JPMorgan last fall in return for the bailout money. When the bank insisted on a lower price, the two sides agreed to let the Treasury auction the warrants. Even then, Mr. Dimon called Mr. Geithner to argue that the government’s valuation was wrong, according to administration and company officials.

But Mr. Geithner reiterated that the auction would protect the Treasury from any criticism that it had cut a backroom deal.

Mr. Emanuel was a senior adviser to President Bill Clinton when he met Mr. Dimon, and briefly entertained a job overture from him at Citigroup.

When Mr. Dimon was fired, he got a supportive call from Mr. Emanuel, who recalled his own firing early in the Clinton years and how he worked his way back into the inner circle.

“The bond here is both of us lost at some place in our career and both rebuilt,” Mr. Emanuel said in an interview. Now, he added, “He’s not afraid to express his opinions and I’m not afraid to express mine.”

He recalled that Mr. Dimon once phoned to protest the anti-business populism taking hold as voters tired of bailouts, and snapped, “Washington doesn’t get it!”

“You guys don’t get the anger out there,” Mr. Emanuel replied. “Jamie, you’re asking the American people to bail out the industry. And if they’re going to bail out the industry, it’s got to change its habits.”

Another Obama associate is on JPMorgan’s payroll. Mr. Dimon hired William M. Daley, a former commerce secretary and Chicago powerbroker, in 2004 as vice chairman and head of Midwest operations. Since 2007, Mr. Daley has overseen global government relations.

It was at that time that Mr. Dimon assessed his own performance for his board and gave himself a “D” for effort in Washington. He subsequently revamped the firm’s government affairs office, mindful of Democrats’ ascendance: They had won control of Congress and were favored to seize the White House in 2008.

Rick Lazio, a Republican former congressman, was replaced as head of government relations, reporting to Mr. Daley, with a wired Democrat: Peter L. Scher, a former official in the Senate, the Commerce Department and the trade representative’s office.

Read the rest here. Hope you do. Suzan ___________________

Easy Answers to the Cry of the Bankstas' Regrets

Have you heard the bankstas register their regrets about the national (or international) mayhem their wild playdays caused previously?

Me neither (not real regrets anyway). And as the game is gearing up again for the next stick-it-to-us bubble, do you think there should be any changes (at a minimum) to the financial derivatives regulations, or do you agree with JPMorgan (and Government Sex) that they are really, really going to play fair this time?

Robert Reich asks "Where are the antitrusters when we need them? Alternatively, why isn't the government charging Goldman and JPMorgan a large insurance fee for classifying both firms as "too big to fail" and therefore automatically bailed out if the risks they take turn sour? Instead, we've ended up with two giants that now have most of the casino to themselves, are playing with poker chips backed by taxpayers, and have a big say in what the rules of the game are to be." (Emphasis marks added - Ed.)

Besides Goldman Sachs, the Street's other surviving behemoth is JPMorgan.

Today it posted second-quarter earnings up a stunning 36 percent from the first quarter, to $2.7 billion.

The resurgence of JPMorgan and Goldman Sachs gives both banks more financial clout than any other players on the Street - allowing both firms to lure talent from everywhere else on the Street with multi-million pay packages, giving both firms enough economic power to charge clients whopping fees, and bestowing on both firms even more political heft in Washington.

. . . When JP Morgan repaid its federal bailout of $25 billion last month it was, like Goldman, freed from stricter government oversight. The freedom has also allowed JP, like Goldman, to take tougher and more vocal stands in Washington against proposed financial regulations they dislike.

JP is mounting a furious lobbying campaign against regulations that would funnel derivatives trading through exchanges where regulators can monitor them, and thereby crimp JP's profits. Now the Street's biggest derivatives player, JP has generated billions helping clients navigate these contracts and assuming counter-party risk in such transactions. Its derivatives contracts were valued at roughly $81 trillion at the end of the first quarter, representing 40 percent of the derivatives held by all banks, according to the Office of the Comptroller of the Currency. JP has played down its potential risk exposure from these derivatives contracts, of course, but anyone who's been paying attention over the last ten months knows that unregulated derivatives have been at the center of the storm.

The tumult on the Street has also given both firms extraordinary market power. That's where much of the current profits are coming from.

JP used the crisis to snap up Bear Stearns in March and Washington Mutual last fall, with the amiable assistance of the Treasury. The deals have boosted JP's dominance in retail banking and prime brokerage, enabling it to charge its corporate clients heftier fees for lending and other financial services, and to corner more of the market in fixed-income and equities. JP also bolstered its earnings by helping other financial companies raise capital following the stress test results in May.

Antitrust law was designed to prevent just this sort of market power and political heft. The Justice Department or the Federal Trade Commission should investigate the new-found dominance of Goldman and JP - and, if warranted, break them up.

Alternatively, Congress should impose a surtax on the newly-exclusive group of Wall Street firms, most notably Goldman and JPMorgan, which are now backed by implicit government bailout insurance guaranteeing that, should they get into trouble, taxpayers will keep them afloat. The surtax would approximate the economic benefit to these firms of such government largesse, which I'd estimate to be at least 50 percent of their profits from here on.

But they've already moved the mechanism that determines the profits to countries without taxes, right, Bob?

Our man in Havana (just kidding!), Paul Krugman, details, for your growing displeasure, The Joy of Sachs.

The American economy remains in dire straits, with one worker in six unemployed or underemployed. Yet Goldman Sachs just reported record quarterly profits — and it’s preparing to hand out huge bonuses, comparable to what it was paying before the crisis. What does this contrast tell us? First, it tells us that Goldman is very good at what it does. Unfortunately, what it does is bad for America. Second, it shows that Wall Street’s bad habits — above all, the system of compensation that helped cause the financial crisis — have not gone away. Third, it shows that by rescuing the financial system without reforming it, Washington has done nothing to protect us from a new crisis, and, in fact, has made another crisis more likely. Let’s start by talking about how Goldman makes money. Over the past generation — ever since the banking deregulation of the Reagan years — the U.S. economy has been “financialized.” The business of moving money around, of slicing, dicing and repackaging financial claims, has soared in importance compared with the actual production of useful stuff. The sector officially labeled “securities, commodity contracts and investments” has grown especially fast, from only 0.3 percent of G.D.P. in the late 1970s to 1.7 percent of G.D.P. in 2007. Such growth would be fine if financialization really delivered on its promises — if financial firms made money by directing capital to its most productive uses, by developing innovative ways to spread and reduce risk. But can anyone, at this point, make those claims with a straight face? Financial firms, we now know, directed vast quantities of capital into the construction of unsellable houses and empty shopping malls. They increased risk rather than reducing it, and concentrated risk rather than spreading it. In effect, the industry was selling dangerous patent medicine to gullible consumers. Goldman’s role in the financialization of America was similar to that of other players, except for one thing: Goldman didn’t believe its own hype. Other banks invested heavily in the same toxic waste they were selling to the public at large. Goldman, famously, made a lot of money selling securities backed by subprime mortgages — then made a lot more money by selling mortgage-backed securities short, just before their value crashed. All of this was perfectly legal, but the net effect was that Goldman made profits by playing the rest of us for suckers. And Wall Streeters have every incentive to keep playing that kind of game. The huge bonuses Goldman will soon hand out show that financial-industry highfliers are still operating under a system of heads they win, tails other people lose. If you’re a banker, and you generate big short-term profits, you get lavishly rewarded — and you don’t have to give the money back if and when those profits turn out to have been a mirage. You have every reason, then, to steer investors into taking risks they don’t understand. And the events of the past year have skewed those incentives even more, by putting taxpayers as well as investors on the hook if things go wrong. I won’t try to parse the competing claims about how much direct benefit Goldman received from recent financial bailouts, especially the government’s assumption of A.I.G.’s liabilities. What’s clear is that Wall Street in general, Goldman very much included, benefited hugely from the government’s provision of a financial backstop — an assurance that it will rescue major financial players whenever things go wrong. You can argue that such rescues are necessary if we’re to avoid a replay of the Great Depression. In fact, I agree. But the result is that the financial system’s liabilities are now backed by an implicit government guarantee. Now the last time there was a comparable expansion of the financial safety net, the creation of federal deposit insurance in the 1930s, it was accompanied by much tighter regulation, to ensure that banks didn’t abuse their privileges. This time, new regulations are still in the drawing-board stage — and the finance lobby is already fighting against even the most basic protections for consumers. If these lobbying efforts succeed, we’ll have set the stage for an even bigger financial disaster a few years down the road. The next crisis could look something like the savings-and-loan mess of the 1980s, in which deregulated banks gambled with, or in some cases stole, taxpayers’ money — except that it would involve the financial industry as a whole. The bottom line is that Goldman’s blowout quarter is good news for Goldman and the people who work there. It’s good news for financial superstars in general, whose paychecks are rapidly climbing back to precrisis levels. But it’s bad news for almost everyone else.

And we know what that means now. I just wonder if we'll have pulled out of this deep d/recession before the next one hits. Thanks, Obama! Suzan ________________

Is the Awarding of Bonuses to the Revealed Criminals at the "Gangster Mega-banks" Psychological Warfare (PsyOps)?

Because it surely seems like it to me (and a few others). Gretchen Morgenson speaks plainly in the pages of Sunday's New York Times, which interestingly enough did absolutely no investigative reporting along these lines when the glamour boys Robert Rubin and Alan Greenspan were spinning the golden finance lies leading us to this precipice. Did anyone mention the New York Times' two-tiered reporting system yet? Like when the Times' sultry Judy Miller was leading the country down the primrose path (at the behest of Dick Cheney's man Ahmed Chalabi) to the War On Iraq? Or do we just accept that sometimes the New York Times actually reports straight news? (Or am I making too many connections too quickly?)

“As we are unpeeling what was happening on Wall Street, we may see that Wall Street didn’t find the safety from litigation risk that it hoped to find in securitization,” said Kathleen Engel, a professor at Cleveland-Marshall College of Law at Cleveland State University. “I think there is potential for liability if borrowers can engage in discovery to see exactly how much the sponsors were shaping the practices of the lenders.” . . . IT is hard not to be dismayed by the fact that two years into our economic crisis so few perpetrators of financial misdeeds have been held accountable for their actions. That so many failed mortgage lenders do not appear to face any legal liability for the role they played in almost blowing up the economy really rankles. They have simply moved on to the next “opportunity.”

And what of the giant institutions that helped finance these monumentally toxic loans, or arranged the securitizations that bundled the loans and sold them to investors? So far, they have argued, fairly successfully, that they operated independently of the original lenders. Therefore, they are not responsible for any questionable loans that were made.

But this argument is growing tougher to defend. Some legal experts point to a number of cases in which plaintiffs contend that firms involved in the securitization process, like trustees hired to oversee the pools of loans backing securities, worked so closely with the lenders that they should face liability as members of a joint venture. And these experts see a rising receptiveness to this argument by some courts.

“As we are unpeeling what was happening on Wall Street, we may see that Wall Street didn’t find the safety from litigation risk that it hoped to find in securitization,” said Kathleen Engel, a professor at Cleveland-Marshall College of Law at Cleveland State University. “I think there is potential for liability if borrowers can engage in discovery to see exactly how much the sponsors were shaping the practices of the lenders.”

. . . fighting a foreclosure on their home of 25 years that they say was a result of an abusive and predatory loan made by NovaStar Mortgage Inc. A lender that had been cited by the Department of Housing and Urban Development for improprieties, like widely hiring outside contractors as loan officers, NovaStar ran out of cash in 2007 and is no longer making loans.

Also named as a defendant in the case is the initial trustee of the securitization that contained the Jordans’ loan: JPMorgan Chase. In 2006, the bank transferred its trustee business to Bank of New York Mellon, which is also a defendant in the case. The Jordans are asking that all three defendants pay punitive damages.

“We contend that the trustee has direct liability on the theory that even though they were not sitting at the loan closing table, they were involved in the securitization and profited from it,” said Sarah E. Bolling, a lawyer in the Home Defense Program at the Atlanta Legal Aid Society who represents the Jordans.

“The prospectus had been written before the loan was closed. If this loan was not going to be assigned to a trust, it would not have been made.”

IN their legal briefs, the trustees have made the traditional argument that their relationship with NovaStar was not a joint venture and that they are not responsible for any problems with the Jordans’ loan.

A JPMorgan spokesman declined to comment on the case but said that because the bank was no longer the trustee, it was not directly involved in the litigation. A spokesman for Bank of New York Mellon also declined to comment.

Doesn't seem like it could be much clearer, so where are these borrowers who "can engage in discovery to see exactly how much the sponsors were shaping the practices of the lenders?" I'm awaiting their entrance.

Mark Crispin Miller (my secret love) fills us in on whatever's missing from today's puzzle. (Emphasis marks added - Ed.)

A few short months ago Goldman Sachs was deemed too big to fail, and allowed to sink its fangs into the public vein. Not only did it receive direct assistance from lowly tax-payers like you and I, the gaggle of Goldman alumni that run the Treasury Department and implemented the Troubled Asset Relief Program funneled tens of billions to insurance giant AIG to assure that it could cover about 13 billion in Goldman’s losses. Goldman paid back the TARP loans — because caps on executive pay are a form of socialism, of course — but is still making hay on the public dime, specifically on the sale of $28 billion worth of subsidized debt courtesy of the FDIC.

But today, as the New York Times put it, “up and down Wall Street, analysts and traders are buzzing” about the fact that Goldman is reporting “blowout profits” to the tune of $3.4 billion in the 2nd quarter. In a masterful bit of understatement, the Washington Post notes that “the New York investment bank profited from turmoil in the financial markets, the absence of former rivals and the continued support of the federal government.”

It’s good for Goldman’s shareholders and great for its traders — according to the WaPo, “Goldman said it set aside $6.65 billion for employee compensation in the second quarter.” But for everyone else? Not so much.

And not only because of the costs borne by the public, not only for the moral hazard this kind of crony capitalism represents, not just for the unfairness inherent in the pervasive reverse socialism we’re seeing these days, but also because of the lessons that support has left unlearned. Protected from the fallout of their bad bets, Wall Street’s casinos are open for business again. Just this week, Bloomberg reported that Morgan Stanley was trotting out another “Collateralized Debt Obligation” backed by shaky loans that’s again getting a AAA rating (if you have no idea what that means, see my piece from last October titled, “How Wall Street’s Scam Artists Turned Home Mortgages Into Economic WMDs”).

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If you can stand it. Suzan

The “Dirty Little Secret” Of the US Bank Bailout

Obviously I'm overjoyed that Obama carried North Carolina and nailed down the largest victory since Lyndon Johnson's in 1964 (which mainly happened then because the country had been traumatized by the assassination of John F. Kennedy the year before). With the just-announced choice of and acceptance by Mr. Pro-War* "Let's Choose New Blue-Dog Democrats to Populate Our Side of the Aisle" Rahm Emanuel as his White House Chief of Staff, I am not so sure that the changes I would like to see are going to made very quickly (if at all). Was he on the board of Freddie Mac? Stephen Colbert has had a few things to say about Emanuel. (See picture of him and his seating partners at the Democratic Convention here.) One concern that must be addressed immediately is the cessation of the taxpayer bailout that is funding the new too-large-to-fail banks (formerly the too-large-to-fail investment houses), who are hoarding the cash and using it to buy other banks, many of which are not even troubled. Barry Grey dissects the “Dirty Little Secret" Of the US Bank Bailout for us.

27 October 2008 "WSWS" --- In an unusually frank article published in Saturday's New York Times, the newspaper's economic columnist, Joe Nocera, reveals what he calls "the dirty little secret of the banking industry" -namely, that "it has no intention of using the [government bailout] money to make new loans." As Nocera explains, the plan announced October 13 by Treasury Secretary Henry Paulson to hand over $250 billion in taxpayer money to the biggest banks, in exchange for non-voting stock, was never really intended to get them to resume lending to businesses and consumers--the ostensible purpose of the bailout. Its essential aim was to engineer a rapid consolidation of the American banking system by subsidizing a wave of takeovers of smaller financial firms by the most powerful banks. Nocera cites an employee-only conference call held October 17 by a top executive of JPMorgan Chase, the beneficiary of $25 billion in public funds. Nocera explains that he obtained the call-in number and was able to listen to a recording of the proceedings, unbeknownst to the executive, whom he declines to name. Asked by one of the participants whether the $25 billion in federal funding will "change our strategic lending policy," the executive replies: "What we do think, it will help us to be a little bit more active on the acquisition side or opportunistic side for some banks who are still struggling." Referring to JPMorgan's recent government-backed acquisition of two large competitors, the executive continues: "And I would not assume that we are done on the acquisition side just because of the Washington Mutual and Bear Stearns mergers. I think there are going to be some great opportunities for us to grow in this environment, and I think we have an opportunity to use that $25 billion in that way, and obviously depending on whether recession turns into depression or what happens in the future, you know, we have that as a backstop." As Nocera notes: "Read that answer as many times as you want--you are not going to find a single word in there about making loans to help the American economy." Later in the conference call the same executive states, "We would think that loan volume will continue to go down as we continue to tighten credit to fully reflect the high cost of pricing on the loan side." "It is starting to appear," the Times columnist writes, "as if one of the Treasury's key rationales for the recapitalization program--namely, that it will cause banks to start lending again--is a fig leaf.... In fact, Treasury wants banks to acquire each other and is using its power to inject capital to force a new and wrenching round of bank consolidation." Early this month, he explains, "in a nearly unnoticed move," Paulson, the former CEO of Goldman Sachs, put in place a new tax break worth billions of dollars that is designed to encourage bank mergers. It allows the acquiring bank to immediately deduct any losses on the books of the acquired bank. Paulson and other Treasury officials have made public statements calling on the banks that receive public funds to use them to increase their lending activities. That, however, is for public consumption. The bailout program imposes no lending requirements on the banks in return for government cash. Already, the credit crisis has been used to engineer the takeover of Bear Stearns and Washington Mutual by JPMorgan, Merrill Lynch by Bank of America, Wachovia by Wells Fargo and, last Friday, National City by PNC. What the Wall Street Journal on Saturday called the "strong-arm sale" of National City provides a taste of what is to come. The Treasury Department sealed the fate of the Cleveland-based bank by deciding not to include it among the regional banks that will receive government handouts. It then gave Pittsburgh-based PNC $7.7 billion from the bailout fund to help defray the costs of a takeover of National City. PNC will also benefit greatly from the tax write-off on mergers enacted by Treasury. All of the claims that were made to justify the bank bailout have been exposed as lies. President Bush, Federal Reserve Chairman Ben Bernanke and Paulson were joined by the Democratic congressional leadership and Barack Obama in warning that the bailout had to be passed, and passed immediately, despite massive popular opposition. Those who opposed the plan were denounced for jeopardizing the well being of the American people. In a nationally televised speech delivered September 24, in advance of the congressional vote on the bailout plan, Bush said it would "help American consumers and businessmen get credit to meet their daily needs and create jobs." If the bailout was not passed, he warned, "More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account.... More businesses would close their doors, and millions of Americans could lose their jobs ... ultimately, our country could experience a long and painful recession." One month later, the bailout has been enacted, and all of the dire developments--banks and businesses disappearing, the stock market plunging, unemployment skyrocketing--which the American people were told it would prevent are unfolding with accelerating speed. While Obama talks about the need for all Americans to "come together" in a spirit of "shared sacrifice"--meaning drastic cuts in Medicare, Medicaid, Social Security and other social programs--and the cost of the bailout is cited to justify fiscal austerity, the bankers proceed to ruthlessly prosecute their class interests. As the World Socialist Web Site warned when it was first proposed in mid-September, the "economic rescue" plan has been revealed to be a scheme to plunder society for the benefit of the financial aristocracy. The American ruling elite, utilizing its domination of the state and the two-party political system, is exploiting a crisis of its own making to carry through an economic agenda, long in preparation, that could not be imposed under normal conditions. The result will be greater economic hardship for ordinary Americans. The big banks will have even greater market power to set interest rates and control access to credit for workers, students and small businesses. While no serious measures are being proposed, either by the Bush administration, the Republican presidential candidate or his Democratic opponent, to prevent a social catastrophe from overtaking working people, the government is organizing a restructuring of the financial system that will enable a handful of mega-banks to increase their power over society.

Don't miss the comment section at the end of the article. Two of my favorite comments are below:

PNC Bank of Pittsburgh, PA is using this money in an attempt to buyout Ohio's leading bank. That was sure nice of me to lend them the $ to do that - what with no risk and no returns. Morrissey | 10.29.08 - - - - - - - - - Possibly the best documentary I have seen to date, which both predicted and explains this phenomenon is available on DVD, created by William T. Still, titled "Money Masters". Google the name "Money Masters" and buy a copy, or if you have to, get a pirated copy and sit down for a 3 1/2 hour lesson of shocking facts. For anyone paying attention, the crash and bail-out plan was very obvious from the begining of this charade. The only purpose of bailing out banks, was consolidation. It is an indisputable fact, the 480 page "Bail-out" bill was already drafted and waiting to be introduced, long before Paulsen, Bush, McCain and Bernanke began selling the notion US economic fundamentals are sound. As you may recall, it was only a few days later when these same scumbags marched out in the media and began singing the exact opposite song, timed to coincide after all the big money was in position for the stock markets to begin crashing. Imagine how many lying thieving scumbag accUntants and lawyers it would have taken to draft 480 pages and pass it around for approvals ? Months, if not years. Unremarkably, there is not one single high powered lawyer, accUntant or politician is raising even a small complaint, and nobody has mentioned the "Sarbanes Oxley" rulings which sent a few executives to jail from Enron, Worldcom, Imclone and that bitch Martha Stewart. It is easy to understand why these classes of people are not dissenting, because they are both the design engineers and bail-out profiteers, control freaks who will be the only people left standing with money to spend at all the liquidations of property, machinery and many other forms of assets. This "crash" in the stock markets and bank consolidation is just the tip of the iceburg, because the vast majority of sub-prime mortgages will only begin to roll-over in 2009, with millions more coming due through to 2012. Many more financial analysts are begining to see this point in just the last week, and a few have been brave enough to say so on public airwaves, which we can be sure will be quickly vetted to remove these warnings. The average common person is equallly as pathetic as many people who are supposedly "educated" with Ivy league diploma's, incapable of turning off the TV and doing some reading, afraid to know what just happened to their 401K plans, or still trying to figure out what just happened a month after the "parade" left town. Many people will try to pretend they have not incurred the losses until they try to redeem their shares into money. But unfortunately this is the same kind of thinking as to be held up and have your watch and wallet stolen, then to pretend you have not been robbed - as long as you dont try to look at the time or reach into your back pocket. Many more people will be caught in the quagmire within the next 12 months, which is why the US military is already preparing a branch of its forces to implement Martial Law during years of predictable civil disobedience and rioting in the streets which will make Watts look like a christmas party. A number of Asian countries are now reporting dramatic rise in suicide rates due to the market fears, anger, and increasing levels of depression. The exact same thing will happen here in North America over the next few years, as more people sudenly discover they have been completely wiped-out financially, with no job, no food, no roof overhead, and no place to run, hide or escape. There can be no question this crash and financial disaster was as well planned as the crash in 1929, and it is also a fact these events were intimately planned to the last detail and executed by exactly the same groups of people in the Bilderberger consortium, made up from the most wealthy private individuals in all 4 corners of the globe, including decendents of Rothschild, JP Morgan, Schiff, heads of state in England, Europe and North America, along with all the new players on the field who dominate ownership of the media, Turner and M and military industrial complex of the United State of Asassination My suggestion, is to stop paying all taxes, all bank mortgages and equity loans, and especially all government debts. Bring this mess to its knees en-mass, show solidarity to each other citizen in need, and remove these powers from the consolidated hands of the thieves on Wall St, Bay St, and every other stock market around the globe. Peter Carson Vancouver CanaDUH cansteel1978@yahoo.ca

* On these electronic pages during the electoral season we have tracked the machinations and motives of Rahm Emanuel (1,2). Long ago Rahm chose 22 key races, open or Republican seats, where Dems might win. By any reasonable criteria, all the candidates chosen by Rahm, save perhaps for one, were pro-war as is Emanuel himself. In two cases Rahm had to put in considerable dollars and effort in the primaries to drive out antiwar candidates. He drove out Cegelis in Illinois's 6th CD, at the cost of one million dollars, in favor of Tammy ("Stay the course") Duckworth who lost in the general election. In California's 11th CD primary, Emanuel backed the prowar Steven Filson who lost to the antiwar candidate, Jerry McNerney, who went on to win in the general election. Looking at all 22 candidates hand-picked by Rahm, we find that 13 were defeated, and only 8 won! (3) (One is still undecided.) And remember that this was the year of the Democratic tsunami and that Rahm's favorites were handsomely financed by the DCCC. Tammy Duckworth, for example, was infused with $3 million ­ and was backed in the primary by HRC, Barack Obama, John Kerry, etc. The Dems have picked up 28 seats so far, maybe more. So out of that 28, Rahm's choices accounted for 8! Since the Dems only needed 15 seats to win the House, Rahm's efforts were completely unnecessary. Had the campaign rested on Rahm's choices, there would have been only 8 or 9 new seats, and the Dems would have lost. In fact, Rahm's efforts were probably counterproductive for the Dems since the great majority of voters were antiwar and they were voting primarily on the issue of the war (60% according to CNN). But Rahm's candidates were not antiwar. So Rahm Emanuel nearly seized defeat from the jaws of victory. The Dems fully intended to pursue the war and the neocons thought that they had found a new host in the Dem party ­ but the voters now perceive the Dems as antiwar and if they do not deliver, they will be damaged. After all Ralph Nader and Chuck Hagel are waiting in the wings for 2008Either Emanuel is completely incompetent or else Emanuel is putting the interests of Israel ahead of Democratic victories. You decide. In either case why would he remain in a position of influence in the Dem party? A good question. A footnote to all this is the skullduggery behind the scenes in the campaign of one of Rahm's losers, Diane Farrell, who lost to Christopher Shays in CT. Farrell successfully passed herself off as antiwar in some quarters, getting the last minute endorsement of Katrina Vanden Heuvel at The Nation. But here is Farrell's "plan" for Iraq according to her web site: "Have Congress step up to its proper oversight role and get the administration to articulate and implement a transition plan in which the U.S. will reduce its role and begin to bring troops home. Set achievement benchmarks, rather than dates, for implementing such a pullback." Farrell does not support the Murtha or McGovern bills; she even rejects "timetables," and puts the onus of getting out of Iraq on "the administration" as opposed to Congressional action, namely her had she won. Why would The Nation support such a candidate? Was it simply incompetence, not doing one's homework? At the same time backers of Farrell, calling themselves Greens, managed to get the hard working and principled Green candidate in her district to withdraw on the basis of "private" and still secret assurances that Farrell would be antiwar in the end. Maybe we will now find out the nature of those assurances. One suspects that if Farrell had adopted a strong antiwar position and challenged her Green opponent that way, rather than conniving to force him out, she might have won the race. But then of course she would have lost Rahm's lucre.

Suzan