Archive for category Wall Street

Wall Street, Coming to Your Town! (and Destroying It) | Alternet

Posted by Michael B. Calyn in Banking, Wall Street on December 7, 2012


Wall Street, Coming to Your Town! (and Destroying It)

austerity isn’t just a European thing.Disastrous

November 19, 2012 

 

Photo Credit: Songquan Deng / Shutterstock.com

This article originally appeared in Dissent Magazine.

The European debt crisis, and the ensuing austerity-fueled chaos, can seem to Americans like a distant battle that portends a dark future. Yet a closer look reveals that the future is already here. American austerity has largely taken the form of municipal budget crises precipitated by predatory Wall Street lending practices. The debt financing of U.S. cities and towns, a neoliberal economic model that long precedes the current recession, has inflicted deep and growing suffering on communities across the country.

In July 2012, Mayor Christopher Doherty of Scranton, Pennsylvania, reduced all city employees’ salaries to the minimum wage. With a stroke of his pen, wages for teachers, firefighters, police, and other municipal workers, many of whom had been on the job for decades, dropped to $7.25 per hour. The city, the mayor explained, simply could not pay them more. Ron Allen, who reported the story for NBC Nightly News, repeated this assessment. Cities like Scranton, he said, “just don’t have the money” to pay city employees more than the minimum wage. Officials blamed the crisis on a declining tax base, on reduced revenue from the state, and on public sector labor contracts that the city could no longer afford.

What does it mean to say that a former steel town in decline “just doesn’t have the money” to pay its bills? It means that it no longer has access to credit markets controlled by the big banks. For years, Scranton officials, like officials across the United States, have been selling municipal bonds to finance everything from basic services to development projects. Scranton’s problems careened out of control when they city’s parking authority threatened to default on its bonds. Wall Street responded aggressively by cutting off its credit line, and city workers paid a steep price. American-style austerity arrived in Scranton under the guise of budget cuts blamed on public employees, whose salaries and pensions had nothing to do with the economic crisis.

Scranton’s problems are hardly unique. Municipalities across the country are grappling with declining local tax revenue and reduced federal funding in an era when growth and development are equated with prosperity. This toxic mix has produced a $3.7 trillion municipal debt market, a revenue juggernaut for Wall Street. Municipal bonds are issued by virtually every city, county, and development agency in the United States. The number of taxpayer-backed bonds in circulation is five times higher than only ten years ago. This means that the world’s largest financial firms now hold the purse strings for everything from essential services like sewage treatment plants to large-scale developments such as sports arenas. Municipal bonds are extremely profitable for investors because they are tax-exempt and, like mortgages, can be packaged into securities.

How Did We Get Here?

Part of the municipal debt story can be traced to New York City’s 1975 fiscal crisis, when the city almost defaulted on its debt. New York was able to avoid bankruptcy at the last moment by issuing guaranteed bonds backed by public pension funds. As a result, the Emergency Financial Control Board, the municipal body that controlled the city’s bank accounts, was in the position of rewriting the social contract, exerting control over labor at every level. Union leadership agreed to the deal because they feared a bankruptcy filing would void labor contracts. Only after the city had disciplined the unions did the federal government move in with rescue loans.

New York City had been debt-financed since the 1960s. But the fiscal crisis of 1975 inaugurated a new funding paradigm for distressed municipalities: taxpayer-backed debt is issued to service the debt already on the books. American municipalities are now increasingly financed not with public money, but with private loans, and the pace of this shift has accelerated since 2008. The Center on Budget Policy and Priorities recently reported that thirty-one states will face unsustainable budget gaps in 2013.

Few public assets are safe from Wall Street’s profit imperative. Public transportation has long been a cash cow for investors. Since 2008, the New York Metropolitan Transportation Authority (MTA) has lost over $600 million as a result of interest rate swaps with JP Morgan Chase, Citigroup, and other big banks. As a result, thousands of transit workers have lost their jobs and hundreds of bus and subway lines have been cut. That is not enough to satisfy the bond market. In March 2013 New York transit riders can expect a new round of fare hikes. Most subway and bus riders are working-class New Yorkers, immigrants, and people of color. They will soon pay even more for the privilege of lining Jamie Dimon’s pockets.

The MTA is not the only municipal organization in the country that runs on debt. The Refund Transit Coalition, a public transportation advocacy group, has uncovered at least 1,100 of these swaps at more than 100 government agencies costing taxpayers $2.5 billion a year. None is more indebted than Boston’s Massachusetts Bay Transportation Authority (MBTA). The story is a familiar one: in 2000 state legislators ended most public subsidies for the MBTA, which was additionally saddled with almost $2 billion in debt, much of it left over from the infamous Big Dig. Wall Street was happy to provide loans so the MBTA could maintain the system’s aging infrastructure and finance expansions.

Twelve years later, Boston’s transit authority spends 33 cents of every dollar it takes in to service its debt. Lawmakers, who have learned the lessons of Scranton all too well, are unwilling to challenge Wall Street. Instead, they have proposed cutting services and raising fares by as much as 43 percent. No one believes this represents a long-term solution. As one Occupy Boston activist noted, “the MBTA has never even asked the banks and bondholders who continue to profit from the [transit system’s] enormous debt to take a similar cut, effectively giving the banks a ‘free ride,’ while forcing T riders—working people, the unemployed, students, seniors, and the disabled—to bear more of the burden.”

Increasing debt loads, along with other neoliberal policies demanding that municipalities do more with less, put cities under enormous pressure to promote private economic growth in lieu of spending public funds on public goods. This imperative is one reason that city officials have pursued controversial development strategies such as declaring a parcel of land “blighted” to allow it to be seized by eminent domain and auctioned to the highest bidder. For example, the Barclays Center, the new arena for the Brooklyn Nets, was built partially on land that was condemned before being transferred to a developer. Cities also generate revenue by leasing public assets to the private sector. In Chicago, for example, the Skyway toll road has been leased to a private company for ninety-nine years. Atlanta even privatized the city water supply, only to cancel the contract years later when residents complained about tainted water.

As the privatization of everything from land to transportation makes clear, taxpayers rarely have a direct say in which bonds are issued and which public assets are sold out from under them. But with municipalities guaranteeing loans by promising that bondholders will be repaid with tax dollars or revenue generated by the debt-funded project, taxpayers are often left footing the bill.

Meanwhile, it remains nearly impossible for municipalities to cancel bond deals. By law, most states cannot declare bankruptcy. And, in many cases, federal bankruptcy codes guarantee that creditors will be repaid. In 1994, Orange County, California declared bankruptcy to repair the damage done when its treasurer took out loans on behalf of the city and then lost $1.6 billion in the securities market. Following what was then the largest bankruptcy filing in U.S. history, the county still paid its bondholders to avoid a tarnished credit rating. Another California city, Stockton, has been implementing severe austerity measures ever since the housing market tanked in 2008 in order to make payments to bondholders. The city cut 25 percent of its police officers, 30 percent of its firefighters, and over 40 percent of all other city employees. The crime rate in Stockton has skyrocketed and unemployment surged, and the city is now considering cutting pension benefits for retirees to pay its debts. The capital of the Golden State, Sacramento, has also cut its police force, by 30 percent, to fill a budget gap, and has seen a similar rise in crime—gun violence, rapes, and robberies have increased dramatically. Communities long ago abandoned by the state are also suffering from austerity. Camden, New Jersey, one of the poorest cities in the United States, recently privatized its police force, laying off officers and canceling union contracts. Today, the Camden police force often does not have the numbers to respond to crimes that don’t involve murder or serious injury.

As cities like Scranton seek to eliminate unsustainable debts, investors grow more demanding. Bond insurers involved in bankruptcy negotiations in Stockton and San Bernardino have even suggested that bondholders have a claim to CalPERS, the retirement fund for California’s public workers. Though the retirement system is constitutionally protected, this is a troubling development because bondholders’ demands are almost always given priority. A recent CBO report noted that “of the 18,400 municipal bond issuers rated by Moody’s Investors Service from 1970 to 2009, only 54 defaulted during that period.” Bonds are bets that banks don’t lose.

Though the debt financing of U.S. cities is not illegal, that doesn’t mean deals are made fairly and transparently. We recently learned that interest rates around the world have been manipulated for years for the benefit of a few firms. Yet the LIBOR scandal is not surprising when one considers that municipal interest rate fraud has been going on for years with no public outcry. In his report on municipal bond rigging in Rolling Stone, Matt Taibbi explainedhow Wall Street has “skimmed untold billions” from hundreds of municipalities—and how they continued to invest in bonds even after they were caught. “Get busted for welfare fraud even once in America, and good luck getting so much as a food stamp ever again,” Taibbi wrote. “Get caught rigging interest rates in 50 states, and the government goes right on handing you billions of dollars in public contracts.” The debt financing of municipal government is an activity promoted and protected by the regulatory arm of the federal government.

What Can Be Done?

Strike Debt, a group (of which I am a member) inspired by Occupy Wall Street, has begun to address municipal bonds as part of a larger critique of debt as a system of wealth extraction. Strike Debt asserts that debt is a primary mechanism through which the 1 percent profits from the 99 percent. Debt affects everyone, especially those who are too poor to access low-interest credit. And Wall Street is the primary culprit. Framing municipal debt as part of a global system poses significant opportunities for organizers because it connects anti-austerity movements abroad to debt resistance efforts at home. Once we reframe debt as a problem that affects us all—as municipal debt obviously does—it becomes easier to imagine that we have enormous power to withdraw our consent.

Strike Debt’s analysis of debt as a system of wealth extraction is also a critique of capitalism. Municipal debt is more than just another example of Wall Street greed and local corruption. It may be the biggest scandal yet because it is not a scandal it all. U.S. cities, towns, and districts are now increasingly debt financed, which means they cannot operate without access to the credit markets controlled by the big banks. This illustrates that Wall Street’s class war against cities cannot be mitigated with more regulation. In fact, the SEC protects investors, not municipalities, from the consequences of bond deals gone bad. Even renegotiating debt often requires new loans. “When muni bond issuers unwind deals and pay enormous exit fees to Wall Street,” the New York Times recently reported, “they typically issue new debt to do so. In recent years, for example, New York State has paid $243 million to terminate such transactions; $191 million was financed by new debt issuance.” Raiding cities for wealth, which produces a cycle of indebtedness, is not illegal or unusual. It is simply the way Wall Street does business.

The idea that some debts cannot and should not be paid is gaining traction. In 2011, for example, Jefferson County, Alabama declared bankruptcy (the largest in U.S. history) to rid itself of $4 billion in debt, much of it issued by corrupt officials to finance a sewer project that left people in a predominantly low-income, African-American community without a functioning sewer. Some do not want to renegotiate the debt. Instead, they reject it outright. As one Occupy activist in Birmingham noted, “[the debt] shouldn’t ever have been issued, and therefore it shouldn’t exist. It shouldn’t have been spent. Since it shouldn’t have existed, we’re not going to pay it.” This statement could become a slogan for debt resistance movements across the country because it insists that debtors are a class, a collective “we” that can decide when enough is enough.

Some municipalities are fighting back, too. After their pay was cut to minimum wage, Scranton’s municipal unions sued the city, and their wages were restored. Baltimore, a city where more than 80 percent of school children qualify for free- or reduced-price lunch, is suing more than a dozen big banks for manipulating LIBOR, the benchmark for interest rates on many financial products. In July, a group called Boston Fare Strike declared a Free Fare Day and held turnstiles open for subway riders to protest fare hikes that enrich the 1 percent. Activists in Chicago are organizing community debt audits with the goal of identifying illegitimate debts that must be abolished. And finally, in a case that has gained national attention, Oakland, CA is trying to sever its relationship with Goldman Sachs for good. In the late 1990s, Oakland issued $187 million in bonds as part of an interest-rate swap. After the credit markets froze in 2008, Oakland could no longer make its payments to Goldman. The city council voted to cancel the deal, though Goldman insists the city must pay. CEO Lloyd Blankfein explained his firm’s unwillingness to let Oakland out of its contract. “The fact of the matter is,” he said, “we’re a bank.”

Blankfein is not wrong. Plundering U.S. cities is what large financial firms do. This is a troubling reality. A bankruptcy attorney featured on the NBC News report about Scranton offered this grim assessment: cutting worker pay is necessary to avoid “more drastic measures.” The reporter didn’t explain this statement, leaving viewers to imagine what terrible fate awaits those who don’t accept the reigning neoliberal orthodoxy that city budgets must be balanced by cutting worker pay, gutting public services, and issuing more debt to profit the 1 percent.

In fact, it is Wall Street that should be afraid of any disruption to business as usual. The cycle of debt illustrates that we cannot fix the problem through austerity. This tactic only deepens the devastation, since low wages further erode the tax base for cities, leaving them vulnerable to predatory lenders. It’s difficult to imagine how the debt financing of American cities could be scaled back without completely rethinking our economic system. Strike Debt is making the case that, in the United States as in Europe, the solution lies not in austerity but in investing in a genuine commons and in providing equitable access to public resources. These are precisely the “drastic measures” alluded to on NBC News. The question we must ask is,drastic for whom?

 Wall Street, Coming to Your Town! (and Destroying It) | Alternet.

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Wall Street Pay Remains High Even as Jobs Shrink – NYTimes.com

Posted by Michael B. Calyn in Wall Street on October 9, 2012


 

Wall Street Pay Remains High Even as Jobs Shrink

BY SUSANNE CRAIG AND BEN PROTESS

Thomas P. DiNapoli, the New York State comptroller, issued his annual report on the securities industry on Tuesday.

Brendan McDermid/ReutersThomas P. DiNapoli, the New York State comptroller, issued his annual report on the securities industry on Tuesday.

It still pays to be on Wall Street.

Even as the financial industry in New York has slashed jobs by the thousands, the average worker who remains is collecting a near-record paycheck.

In a report released on Tuesday, the New York State Comptroller, Thomas P. DiNapoli, said that the average pay package of securities industry employees grew slightly last year and was up 16.6 percent over the past two years, to $362,950. Wall Street’s total compensation rose 4 percent last year to more than $60 billion.

That tally is the third highest in Wall Street history, trailing only the total amounts in the years 2007 and 2008, when the financial crisis was gathering force. The results are sure to raise eyebrows on Main Street and in Washington, where lavish pay packages have come under attack since the crisis.

But the report provides only a limited snapshot into Wall Street’s finances. The wage data, which largely covers 2011, is somewhat outdated and other jobs figures in the report do not account for the remaining months of 2012. Nearly half of all revenue on Wall Street is earmarked for compensation, and employees typically learn the size of their bonus at the end of the year.

Expectations for this year appear to be high, according to another study out today on pay. Nearly half, 48 percent, of 911 Wall Street employees surveyed by eFinancialCareers.com said they felt their bonuses this year will higher than in 2011. This is a marked rise from 2011, when 41 percent of survey respondents believed their annual bonus would increase.

The comptroller’s annual report also depicted a cloudy outlook for the broader industry and its thousands of employees. In the face of new regulation and a lethargic economic recovery, the report notes, Wall Street has undergone a series of layoffs and lagging returns.

“The securities industry remains in transition and volatility in profits and employment show that we have not yet reached the new normal,” Mr. DiNapoli said in a statement.

After posting a “disappointing” $7.7 billion in earnings last year, Wall Street in the first half of 2012 earned $10.5 billion, he said. The industry “is on pace” to earn more than $15 billion by the end of the year.

But even with signs of improvement, Wall Street is rapidly shedding jobs. The austerity efforts have claimed 1,200 positions so far this year, according to the report. Mr. DiNapoli estimated that the industry lost more than 20,000 jobs since late 2007.

Banks have also taken aim at lavish cash bonuses. The comptroller in February estimated that cash bonuses declined 13.5 percent, to $19.7 billion. In his latest report, Mr. DiNapoli said he expects that trend to continue.

As Wall Street reins in cash payouts to top executives, the banks have been encouraged to give more compensation in stock and other long-term compensation to reward employees. Such a move discourages outsize risk taking and ties an employee’s interest to the long-term health of the bank.

While pay remains high across the board, senior executive has fallen since the financial crisis. In 2007, the year before the financial crisis, Goldman chief executive Lloyd C. Blankfein made $68.5 million. In 2011 he took home $12 million.

For an executive like Mr. Blankfein, $12 million may be a pay cut, but it is still a princely sum compared with other industries. Between 2009 and 2011, compensation in the securities industry grew at an average annual rate of 8.7 percent, outpacing 5.3 percent for the rest of the private sector.

In 2011, financial jobs accounted for nearly a quarter of all private sector wages paid in New York City, even though it accounted for just a fraction, 5.3 percent, of city’s private sector jobs.

Wall Street Pay Remains High Even as Jobs Shrink – NYTimes.com.

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George Washington: Will We Have to Wait for a 21st Century Peasants’ Revolt Before Seeing Any Real Change? « naked capitalism

Posted by Michael B. Calyn in Banking, Legal, Wall Street on August 5, 2012


 

 

George Washington: Will We Have to Wait for a 21st Century Peasants’ Revolt Before Seeing Any Real Change?

While everyone from Tony Blair to Nouriel Roubini is debating whether or not bankers should be hung, the Wall Street Journal and Bloomberg provide some fascinating historical context.

The journal’s Jason Zweig reports:

Financial criminals throughout history have been beaten, tortured and even put to death, with little evidence that severe punishments have consistently deterred people from misconduct that could make them rich.

The history of drastic punishment for financial crimes may be nearly as old as wealth itself.

The Code of Hammurabi, more than 3,700 years ago, stipulated that any Mesopotamian who violated the terms of a financial contract – including the futures contracts that were commonly used in commodities trading in Babylon – “shall be put to death as a thief.” The severe penalty doesn’t seem to have eradicated such cheating, however.

In medieval Catalonia, a banker who went bust wasn’t merely humiliated by town criers who declaimed his failure in public squares throughout the land; he had to live on nothing but bread and water until he paid off his depositors in full. If, after a year, he was unable to repay, he would be executed – as in the case of banker Francesch Castello, who was beheaded in 1360. Bankers who lied about their books could also be subject to the death penalty.

In Florence during the Renaissance, the Arte del Cambio – the guild of mercantile money-changers who facilitated the city’s international trade – made the cheating of clients punishable by torture. Rule 70 of the guild’s statutes stipulated that any member caught in unethical conduct could be disciplined on the rack “or other corrective instruments” at the headquarters of the guild.

But financial crimes weren’t merely punished; they were stigmatized. Dante’s Inferno is populated largely with financial sinners, each category with its own distinctive punishment: misers who roll giant weights pointlessly back and forth with their chests, thieves festooned with snakes and lizards, usurers draped with purses they can’t reach, even forecasters whose heads are wrenched around backward to symbolize their inability to see what is in front of them.

Counterfeiting and forgery, as the historian Marvin Becker noted in 1976, “were much less prevalent in Florence during the second half of the fourteenth century than in Tuscany during the twentieth century” and “the bankruptcy rate stood at approximately one-half [the modern rate].”

In England, counterfeiting was punishable by death starting in the 14th century, and altering the coinage was declared a form of high treason by 1562.

In the 17th century, the British state cracked down ferociously on counterfeiters and “coin-clippers” (who snipped shards of metal off coins, yielding scraps they could later melt down or resell). The offenders were thrown into London’s notorious Newgate prison. The lucky ones, after being dragged on planks through sewage-filled streets, were hanged. Others were smeared with tar from head to toe, tied or shackled to a stake, and then burned to death.

The British government was so determined to stamp out these financial crimes that it put Sir Isaac Newton on the case. Appointed as warden of the Royal Mint in 1696, Newton promptly began uncovering those who violated the financial laws of the nation with the same passion he brought to discovering the physical laws of the universe.

The great scientist was tireless and merciless. Newton went undercover, donning disguises to prowl through prisons, taverns and other dens of iniquity in search of financial fraud. He had suspects brought to the Mint, often by force, and interrogated them himself. In a year and a half, says historian Carl Wennerlind, Newton grilled 200 suspects, “employing means that sometimes bordered on torture.”

When one counterfeiter begged Newton to save him from the gallows – “O dear Sr no body can save me but you O God my God I shall be murderd unless you save me O I hope God will move your heart with mercy and pitty to do this thing for me” – Newton coldly refused.

The counterfeiter was hanged two weeks later.

Until at least the early 19th century, it remained commonplace for counterfeiters and forgers to be put to death; between 1792 and 1829, for example, notes Wennerlind, 618 people were convicted of counterfeiting British paper currency, and most of them were hanged. Many were women.

Bloomberg provides details of one “peasant revolt” stemming from a Libor-like currency manipulation scheme:

During the “Good Parliament” of 1376, public discontent over [manipulation of currency exchange rates similar to the current Libor scandal] came to a head. The Commons, represented by the speaker, Peter de la Mare, accused leading members of the royal court of abusing their position to profit from public funds.

A particular target was the London financier Richard Lyons ….

Initially the government bowed to public pressure. Lyons was imprisoned in the Tower of London and his properties and wealth were confiscated. Other leading courtiers implicated in these abuses, such as Latimer and the king’s mistress, Alice Perrers, were banished from court.

Once parliament had dissolved and the public outcry had died down, however, the king’s eldest son, John of Gaunt, acted to reverse the verdicts of the Good Parliament. Latimer and Perrers soon reappeared at the king’s side and Lyons was released from the Tower and recovered his wealth, while the “whistleblower” de la Mare was thrown in jail. The government also sought to appease the wealthy knights and merchants that dominated parliament by imposing a new, regressive form of taxation, a poll tax paid by everyone rather than a tax levied on goods. This effectively passed the burden of royal finance down to the peasantry.

It seemed as though everything had returned to business as normal and Lyons appeared to have gotten away with it. In 1381, however, simmering discontent over continuing suspicions of government corruption and the poll tax contributed to a massive popular uprising, the Peasants’ Revolt, during which leading government ministers, including Simon of Sudbury (the chancellor and archbishop of Canterbury) and Robert Hales (the treasurer) were executed by the rebels. This time, Lyons did not escape; he was singled out, dragged from his house and beheaded in the street.

If the King had followed the rule of law – and kept Lyons and the boys in jail – everything would have calmed down. The monarchy – just like the present-day government – chose to ignore the rule of law, and protect the thieves and punish the whistleblowers.

We have argued for years that the best way to avoid violence is to reinstate the rule of law.

The Bloomberg article – written by a professor of the history of finance and a professor of finance at the ICMA Centre, Henley Business School, University of Reading – ends on a similar note:

The question now is whether public outrage at the Libor scandal and other financial misdeeds will lead to fundamental reforms of the financial sector — such as the separation of retail and investment banking or legislation to regulate the “bonus culture” — or just more cosmetic changes that fail to address the structural issues.

Will we have to wait for a 21st century peasants’ revolt before seeing any real change?


George Washington: Will We Have to Wait for a 21st Century Peasants’ Revolt Before Seeing Any Real Change? « naked capitalism.

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The Betrayal of the American Dream — A Once Vibrant Middle Class Is Now on the Brink | Alternet

Posted by Michael B. Calyn in Economics, Economy, Opinion, Perspective, Taxes, Wall Street, Work Place on August 3, 2012


 

The Betrayal of the American Dream — A Once Vibrant Middle Class Is Now on the Brink

Donald Barlett and James Steele explain in their new book how American middle class has been impoverished and its prospects thwarted in favor of a new ruling elite.

August 1, 2012  |  

 

 

AMY GOODMAN: Democrats and Republican lawmakers are in a deadlock over whether to extend the politically decisive Bush-era tax cuts. The Republican-controlled House of Representatives is planning to vote this week to extend all the cuts, but Obama says those Americans making above $250,000 a year should return to the tax levels they paid before Bush took office. Pointing to the Senate’s passage of the White House-backed proposal, Obama called on House Republicans to support the bill in his weekly address on Saturday.

PRESIDENT BARACK OBAMA: This week, the Senate passed a plan that I proposed a few weeks ago to protect middle-class Americans and virtually every small business owner from getting hit with a big tax hike next year—a tax hike of $2,200 for the typical family. Now it comes down to this. If 218 members of the House vote the right way, 98 percent of American families and 97 percent of small business owners will have the certainty of knowing that their income taxes will not go up next year. That certainly means something to a middle-class family who has already stretched the budget as far as it can go.

AMY GOODMAN: In an interview on Fox News, Republican House Speaker John Boehner countered that Obama’s tax plan would destroy hundreds of thousands of jobs.

SPEAKER JOHN BOEHNER: President’s plan would cost about 700,000 new jobs that wouldn’t be created or could be lost by taxing small businesses. The House will not do that. The House will extend all of the existing tax rates. We’ve got 8 percent unemployment; we’ve got 41 months of it. This is not to be time—the time to be raising taxes on American small businesses.

AMY GOODMAN: As Republicans and Democrats continue disputing who should bare the brunt of the tax burden, our next guests argue America’s middle class has been decimated over the years due to policies governing not only taxes but also bank regulations, trade deficits and pension funds. Their new book chronicles how the American middle class has been systematically impoverished and its prospects thwarted in favor of a new ruling elite.

We’re joined now for the hour by Don Barlett and James Steele, the award-winning investigative reporters. They have worked together for over 40 years, first at thePhiladelphia Inquirer, then at Time magazine, most recently at Vanity Fair. They’ve also written seven books. Their first book, America: What Went Wrong?, was a New York Times bestseller. They share two Pulitzer Prizes, two National Magazine Awards. Their new book is called The Betrayal of the American Dream.

Jim Steele, Don Barlett, we welcome you both to Democracy Now! Start off by laying out your thesis, Don. Start off by talking about the betrayal of the American dream.

DONALD BARLETT: It really goes back to when we did America: What Went Wrong?, which was in ’91. And at that time, people were upset around the country. They knew something was happening, but they didn’t know what. And what made that book so successful was that we pulled everything together in terms of pensions and pay and union membership—and just everything economics. And you could see that there was a systematic attack going on on the middle class.

At that time, it was still kind of—you know, could have gone either way if there had been a political response, which there should have been, but there wasn’t. And as a result, when—we received just literally hundreds and hundreds and hundreds of letters of emails over the last several years saying, “Would you go back and look at this in terms of what you wrote the first time?” And if we made one mistake the first time, it was we grossly underestimated how fast this country was going to go down the tubes. And we really did.

Back then, there were still defined benefit pensions, and people still had a hope of getting them. They’re gone. There was one wage structure. Now there are two-tiered wage systems all over the country. The one wage is gone. Income has been flat, for the most part, since then. You go down the list, and everything has gotten incredibly worse than it was then.

And one of the arguments that was raised by critics back then was because this—that series ran right at the tail end of one of the recessions, and people said, “Well, what’s happening now is really related to the recession, and once we’re out of the recession, everything will be fine.” And we made the point this was not true, that what was happening was totally unrelated to the recession. It was the result of structural defects in the American economy, and it was going to continue unless they were dealt with. Well, they weren’t dealt with, and now everything is—you couldn’t even go back now to the 2000 level and give people what they had then. It would be impossible, given the attitudes in Congress, the hardening lines in Washington.

AMY GOODMAN: I wanted to talk about specifics and also go general. Jim Steele, the story of corporations tell a very major story about the United States, corporations like Apple and Boeing. Apple doesn’t manufacture one product in the United States?

JAMES STEELE: That’s correct. That’s correct. I think some of the parts—some of the parts are made here, but basically the essential products aren’t. And we made the point in the book—we actually wrote about this before a lot of the news surfaced this year—that what was significant about what Apple has done is not just their working conditions in China, which were horrendous by the subcontractors over there, but what they did, they completely closed down manufacturing in this country after really less than a generation. The historic pattern in this country was a product would be invented here, a company would go into business, they would start making it. Up and down the line, you had a broad-based workforce for that product, from folks on the factory floor to the designers, to the salesmen, so on, to the stockholders who might be part of that company. But ultimately, you had this broad-based situation. Apple originally had some manufacturing in this country but very quickly, in less than a generation, just closed that down and shipped most things to China and other countries. And it’s just part of that pattern where jobs that once middle-class people had in this country are now gone.

You see a similar kind of thing now going on with Boeing. Boeing has outsourced all kinds of parts of the new Dreamliner, its great new aircraft, which of course has recently run into some problems with parts of their engines falling off, apparently. But Boeing, as part of getting into the Chinese market, which everybody agrees will be a huge market, has manufactured all sorts of things over there. Basically, what Boeing is doing, which a lot of companies are doing, they are basically showing the Chinese how to make airplanes. And what have the Chinese done? They’re creating their own civilian aircraft industry, where we were told, I think, in this country the idea was have some presence there so we can sell them airplanes. But where is that going to lead down the line if we are turning over to them some of the technology that will let them build airplanes that are our principal export in this country?

Read More…

The Betrayal of the American Dream — A Once Vibrant Middle Class Is Now on the Brink | Alternet.

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Wall Street’s Biggest Heist Yet? How the High Wizards of Finance Gutted Our Schools and Cities | Economy | AlterNet

Posted by Michael B. Calyn in Banking, Wall Street on July 20, 2012


 

AlterNet / By Pam Martens

Wall Street’s Biggest Heist Yet? How the High Wizards of Finance Gutted Our Schools and Cities

The complex machinations that pitted county treasurers against the deceptive wizards of Wall Street.

July 17, 2012 

 

 

Wall Street banks have hollowed out our communities with fraudulently sold mortgages and illegal foreclosures and settled the crimes for pennies on the dollar.  They’ve set back property records to the early 1900s, skipping the recording of deeds in county registry offices and using their own front called MERS.  They lobbied to kill fixed pension plans and then shaved a decade of growth off our 401(K)s with exorbitant fees, rigged research and trading for the house.

When much of Wall Street collapsed in 2008 as a direct result of their corrupt business model, their pals in Washington used the public purse to resuscitate the same corrupt financial model – allowing even greater depositor concentration at JPMorgan and Bank of America through acquisitions of crippled firms.

And now, Wall Street may get away with the biggest heist of the public purse in the history of the world.  You know it’s an unprecedented crime when the conservative Economist magazine sums up the situation with a one word headline: “Banksters.”

It has been widely reported that Libor, the interest rate benchmark that was rigged by a banking cartel, impacted $10 trillion in consumer loans.  Libor stands for London Interbank Offered Rate and is supposed to be a reliable reflection of the rate at which banks are lending to each other.  Based on the average of that rate, after highs and lows are discarded, the Libor index is used as a  key index for setting loan rates around the world, including adjustable rate mortgages, credit card payments and student loans here in the U.S.

But what’s missing from the debate are the most diabolical parts of the scam: how a rigged Libor rate was used to defraud municipalities across America, inflate bank stock prices, and potentially rig futures markets around the world.  All while the top U.S. bank regulator dealt with the problem by fiddling with a memo to the Bank of England.

Libor is also one of the leading interest rate benchmarks used to create payment terms on interest rate swaps.  Wall Street has convinced Congress that it needs those derivatives to hedge its balance sheet. But look at these statistics. According to the Office of the Comptroller of the Currency, as of March 31, 2012, U.S. banks held $183.7 trillion in interest rate contracts but just four firms represent 93% of total derivative holdings: JPMorgan Chase, Citibank, Bank of America and Goldman Sachs.

As of March 31, 2012, there were 7,307 FDIC insured banks in the U.S. according to the FDIC.   All of those banks, including the four above, have a total of $13.4 trillion in assets. Why would four banks need to hedge to the tune of 13 times all assets held in all 7,307 banks in the U.S.?

The answer is that most swaps are not being used as a hedge.  They are being used as a money-making racket for Wall Street.

The Libor rate was used to manipulate, not just tens of trillions of consumer loans, buthundreds of trillions in interest rate contracts (swaps) with municipalities across America and around the globe.  (Milan prosecutors have charged JPMorgan, Deutsche Bank, UBS and Depfa Bank with derivatives fraud and earning $128 million in hidden fees.)

Rigging Libor also inflated the value of the trash that Wall Street was parking in 2008 and 2009 at the Federal Reserve Bank of New York to extract trillions in cash at near zero interest-rate loans from the public purse. When rates rise, bond prices decline.  When rates decline, bond prices rise.  The Federal Reserve made loans to Wall Street based on a percentage of the face value of their bonds and mortgage backed securities that they presented for collateral. By pushing down interest rates, the banks were getting a lift out of their collateral, allowing them to borrow more.

The banks that cheated on Libor were also perpetrating a public fraud in terms of how the market perceived their risk.  The Libor rate they each reported every morning to compile the index was based on the rate they would pay to borrow from other banks, thus the name London Interbank Offered Rate or Libor.  So, for example, even though Citibank’s credit default swap prices were rising dramatically during the 2008 crisis, suggesting it was in trouble, it was reporting low borrowing costs to the Libor index.

Because interest rates impact the price movement of stocks, the rigged lowering of the Libor rate put a false prop under the stock market as well as inflated individual bank stocks.  There is also a  very strong suggestion that there was insider trading on futures or swaps markets based on the spread between the one month and three month Libor rates. One trader’s email to the Libor submitter reads: “We need a 4.17 fix in 1m (low fix) We need a 4.41 fix in 3m (high fix).” 

In simple terms, Wall Street and its colleagues in the global banking cartel have left us clueless as a nation about the validity of our markets, how much hidden debt liability our local and state governments really have, and where the stock market would actually be if interest rates had not been rigged.

Let’s explore the almost incomprehensible rip off of our now struggling communities. Here’s how the swap deals typically worked, although there were Byzantine variations called constant maturity swaps (CMS), swaptions, and snowballs.  These complex machinations pitted the brains of county treasurers or school boards against the deceptive wizards of Wall Street.

Municipalities typically entered into an interest rate swap because Wall Street’s fast talking salesmen showed up with incomprehensible power point slides wearing $3,000 suits and assured municipal officials it would lower their overall borrowing costs on their municipal bond issues.  A typical deal involved the municipality issuing variable rate municipal bonds and simultaneously signing a contract (interest rate swap) with a Wall Street bank that locked it into paying the bank a fixed rate while it received from the bank a floating interest rate tied to one of two indices. One index, Libor, was operated by an international bankers’ trade group, the British Bankers Association.  The other index, SIFMA, was operated by a Wall Street trade association.  Neither was an independent monitor for the public interest.

When the two sets of cash flows are calculated, the side that generates the larger payments receives the difference between the sums. In many cases, continuing to this day, the municipality ended up receiving a fraction of one percent, while contractually bound to pay Wall Street firms as much as 3 to 6 percent in a fixed rate for twenty years or longer.  If the local or state governments or school boards wanted out of the deal, a multi-million dollar penalty fee could be charged based on the rate structure and notional (face amount) of the swap.

We learned late last month that the Libor rate the municipalities were receiving was manipulated downward from at least 2007 to 2010 by a global banking cartel. The U.S. dollar Libor panel included U.S. banks JPMorgan Chase, Citibank (whose parent is the former ward of the taxpayer, Citigroup), and Bank of America. Canadian prosecutors have implicated JPMorgan and Citibank in a criminal probe, as well as other banks.  A whistleblower has provided the names of traders that are alleged to have taken part in the scheme and turned over emails, according to affidavits filed with the Ontario Superior Court.

At least 12 global banks are being investigated by U.S., British and European authorities. Barclays admitted in June that its employees rigged Libor rates. It paid $453 million in fines to U.S. and British authorities and turned over emails showing its traders and those at other, as yet unnamed, banks gave instructions on how the rates were to be rigged on specific dates.

No one has accused SIFMA, the other interest rate benchmark used to set variable rates of interest on municipal bonds, of overseeing a rigged index but it is certainly not a comfort to understand just what SIFMA is.  On its web site, SIFMA defines itself as follows:  “The Securities Industry and Financial Markets Association (SIFMA) represents the industry which powers the global economy.  Born of the merger between the Securities Industry Association and the Bond Market Association, SIFMA is the single powerful voice for strengthening markets and supporting investors — the world over.”

Notice that the words “Wall Street” do not appear in this description and yet, that is precisely what SIFMA is: a Wall Street trade association that viciously lobbies for Wall Street. (As for “supporting investors,” it should be sued for false advertising.)  In February of this year, it even sued the top regulator of derivatives, the Commodity Futures Trading Commission in Federal Court to stop it from setting limits on the maximum size of derivative bets that can be taken in the market.

From 2000 through 2011, SIFMA spent $96.4 million lobbying Congress on behalf of Wall Street.  In the 2008 election cycle, according to the Center for Responsive Politics, SIFMA spent $865,000 in political donations, giving to both Republicans and Democrats.

In March 2010, the Service Employees International Union (SEIU) issued a report indicating that from 2006 through early 2008 banks are estimated to have collected as much as $28 billion in termination fees from state and local governments who were desperate to exit the abusive interest rate swaps.  That amount does not include the ongoing outsized interest payments that were and are being paid. Experts believe that billions of abusive swaps may be as yet unacknowledged by embarrassed municipalities.  

In 2009, the Auditor General of Pennsylvania, Jack Wagner, found that 626 swaps were done in Pennsylvania between October 2003 and June 2009, covering $14.9 billion in municipal bonds.  That encompassed 107 of Pennsylvania’s 500 school districts and 86 other local governments.  The swaps were sold to the municipalities by Citibank, Goldman Sachs, JPMorgan and Morgan Stanley.

In one case cited by Wagner, the Bethlehem Area School entered into 13 different swaps, covering $272.9 million in debt for school construction projects.  Two swaps which had concluded at the time of Wagner’s investigation cost taxpayers $10.2 million more than if the district had issued a standard fixed-rate bond or note and $15.5 million more than if the district had simply paid the interest on the variable-rate note without any swaps at all.

And therein lies the rub. Municipalities never needed these nonsensical weapons of mass deception.  Muni bond issuers could have simply done what muni investors have done for a century – laddered their bonds.  To hedge risk, an issuer simply has bonds maturing along a short, intermediate and long-term yield curve.  If rates rise, they are hedged with the intermediate and long term bonds.  If rates fall, the short munis will mature and can be rolled over into the lower interest rate environment.  Municipal issuers are further protected by being able to establish call dates of typically 5 years, 7 years, or 10 years when they issue long terms bonds. They pay moms and pops and seniors across America, who buy these muni bonds,  a small premium of usually $10 to $20 per thousand face amount and call in the bonds if the interest rate environment becomes more attractive for issuance of new bonds.

According to the June 30, 2011 auditor’s report for the City of Oakland, California, the city entered into a swap with Goldman Sachs Mitsui Marine Derivatives Products in connection with $187.5 million of muni bonds for Oakland Joint Powers Financing Authority.  Under the swap terms, the city would pay Goldman a fixed rate of 5.6775 percent through 2021 and receive a variable rate based on the Bond Market Association index (that was the predecessor name to the SIFMA index). In 2003, the variable rate was changed from being indexed to the Bond Market Association index to being indexed at 65 percent of the one-month Libor rate.

The city is still paying the high fixed rate but it’s receiving a miniscule rate of less than one percent.  According to local officials, the city has paid Goldman roughly $32 million more than it has received and could be out another $20 million if it has to hold the swap until 2021.  A group called the Oakland Coalition to Stop Goldman Sachs succeeded in getting the City Council to vote on July 3 of this year to stop doing business with Goldman Sachs if it doesn’t allow Oakland to terminate the swap without penalty.  It called the vote “a huge victory for both the city of Oakland and for the people throughout the world living under the boot of interest rate swaps.”

The Mayor of Baltimore, the Baltimore City Council, the City of New Britain Firefighters’ and Police Benefit Fund of Connecticut have filed a class action lawsuit in Federal Court in New York over the rigging of Libor. The plaintiffs state that the City of Baltimore purchased hundreds of millions of dollars of derivatives tied to Libor while the New Britain Firefighters and Police Benefit Fund purchased tens of millions. They are suing the banks involved in submitting the  Libor rates.

Wall Street’s boot on interest rate swaps dates back at least 17 years.  In February 1995, Smith Barney  (now co-owned by Citigroup and Morgan Stanley) fired Michael Lissack as a managing director in the firm’s public finance department after he publicly accused the firm of cheating Dade County, Florida out of millions on an interest rate swap.  Lissack went on to become the scourge of Wall Street by expertly detailing how counties and states were being ripped off by Wall Street.  He even set up this amusing web site to do battle with the firm.  The case became known as the “yield burning case,” an esoteric term that the public could hardly fathom, much like the Libor scandal today.

In 2000, the Securities and Exchange Commission settled the yield burning matter with 21 firms and imposed fines of $172 million, a minor slap on the wrist given the profits of the firms.  Arthur Levitt was Chairman of the SEC at the time and came from the ranks of Wall Street.

Which brings us full circle.  If you’ve ever wondered where all of those revolving doors between Wall Street and Washington would eventually lead us, we’ve just found out.  It leads to the regulators becoming just as jaded and compromised as Wall Street.  While Wall Street banks and their global counterparts were grabbing the loot, their regulator was watching carefully behind the wheel of the getaway car for at least four years.

This past Friday, the Federal Reserve Bank of New York turned over emails and documents showing that Timothy Geithner, the sitting U.S. Treasury Secretary of the United States, knew at least as early as 2008 that Libor was being rigged.  At the time, Geithner was the President and CEO of the Federal Reserve Bank of New York – the top regulator of Wall Street’s largest banks.  As far as we know currently, Geithner did nothing more to stop the practice than send an email with recommendations to Mervyn King, Governor of the Bank of England.  Libor rigging continued through at least 2010.

As the U.S. grapples with intractable wealth disparity and the related ills of unemployment and recession, we need to understand that this was not merely a few rascals rigging some esoteric index in London.  This was an institutionalized wealth transfer system on an almost unimaginable scale.

 Wall Street’s Biggest Heist Yet? How the High Wizards of Finance Gutted Our Schools and Cities | Economy | AlterNet.

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Matt Taibbi Dishes on the “Biggest Insider Trading You Could Ever Imagine” | Economy | AlterNet

Posted by Michael B. Calyn in Banking, Business, Economy, Global Affairs, Wall Street on July 20, 2012


 

Democracy Now! / By Juan Gonzalez and Amy Goodman

Matt Taibbi Dishes on the “Biggest Insider Trading You Could Ever Imagine”

Sixteen international banks are accused of rigging a key global interest rate used in contracts worth trillions of dollars.

July 19, 2012 

Photo Credit: nasirkhan/shutterstock.com 

JUAN GONZÁLEZ: We end today’s show with Matt Taibbi. He’s a contributing editor for Rolling Stone magazine. His most recent in-depth piece is “The Scam Wall Street Learned from the Mafia: How America’s Biggest Banks Took Part in a Nationwide Bid-Rigging Conspiracy—Until They Were Caught on Tape.”

Matt Taibbi has also been closely following the Libor scandal. Sixteen international banks are accused of rigging a key global interest rate used in contracts worth trillions of dollars. The London Interbank Offered Rate, known as Libor, is the average interest rate at which banks can borrow from each other. Some analysts say it defines the cost of money. The benchmark rate sets the borrowing costs of everything from mortgages to student loans to credit card accounts.

AMY GOODMAN: Matt Taibbi is with us here in New York. His latest book is called Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History.

Matt, welcome to Democracy Now!

MATT TAIBBI: Good morning.

AMY GOODMAN: Explain Libor.

MATT TAIBBI: Libor is basically the rate at which banks borrow from each other. It’s a benchmark that sets—that a lot of international investment products are pegged to. When Libor is low, that means that the banks feel confident in each other; and when Libor is high, that means there is generally instability. And what we’ve been dealing with in this scandal are really two different types of manipulation: one in which the banks manipulated Libor downward so as to create the appearance of good health generally, and then, more specifically, a much more insidious kind of corruption where they were manipulating it both up and down in order to capitalize on particular trades, depending on what the banks were holding that day. So this is an explosive, gigantic financial scandal.

JUAN GONZÁLEZ: But, Matt, you know, I was listening to Lawrence Kudlow a couple of nights ago on CNBC, the guru of business journalism, and he claims this is a victimless crime, that this has been blown up out of proportion by the rest of the media and by some of the government regulators.

MATT TAIBBI: I mean, it’s—I can’t imagine how he could possibly—a sane person could possibly describe this as a victimless crime. Basically, every city and town in America, to say nothing of the rest of the world, has investments that are pegged to Libor. Most of them are holding investment accounts that actually will decrease in value as Libor goes down. So, you’re talking—

JUAN GONZÁLEZ: Well, I think that’s what most people don’t understand, that they say, well, if the interest rate goes down—

MATT TAIBBI: Right.

JUAN GONZÁLEZ: —that means you’re paying less. But they don’t understand the interest swaps that have occurred with many of these governments.

MATT TAIBBI: Right, most individuals think of it in terms of their own mortgages or their own credit cards. And it’s true, most of those people probably benefited when they were manipulating Libor down. But now, remember, they also manipulated it upwards at times. But when it was downward, those individuals did benefit. But on the whole, overall, ordinary people actually suffered when Libor was manipulated downward, mainly because local governments, municipal governments tended to lose money. So if you live in a town that had a budget crisis, that had to lay off firemen or teachers or policemen, or couldn’t provide services or textbooks in their schools, you know, that might be due to this. And remember, even the tiniest manipulation downward, when you’re talking about a thing of this scale, would result in tens of trillions of dollars of losses. So it’s an enormous scandal. It eclipses anything we’ve seen since 2008.

AMY GOODMAN: Matt, on Wednesday, U.S. Treasury Secretary Tim Geithner defended himself against criticisms that regulators should have done more to address concerns over the credibility of the Libor interest rate.

TREASURY SECRETARY TIMOTHY GEITHNER: We acted very early in response to concerns that the processes to set this rate was impaired and flawed and vulnerable to misrepresentation. We were worried about it, we were concerned about it. I took the initiative to brief the entire U.S. regulatory community on this at a very early stage, early May. My staff then briefed the SEC, CFTC. We brought it to the attention of the British and took the exceptional step of writing them—putting in writing to them a detailed set of recommendations that revealed the extent of the concerns in that context. And the U.S., to its credit, set in motion, at that stage, a very, very powerful enforcement response, the first results of which you have now seen.

AMY GOODMAN: That’s Treasury Secretary Tim Geithner. Matt Taibbi, your response?

MATT TAIBBI: Well, first of all, the Bank of England chief, Mervyn King, says that the memo that he sent to the British actually didn’t outline any specific regulatory concerns. It didn’t give them any information but only proposed steps that they might take in the future. And those steps were actually just more recommendations for more self-regulation for the banks. My question is, if the Bank of England and the Fed knew about this activity dating back to 2008, why was nothing done? Why were there no criminal investigations until now? Why did the rest of us not hear about it? This is information that should be pertinent to everybody who makes investments, but it was kept secret from everybody. Remember, the information that the Fed got was that some of the banks not only were manipulating Libor, but they were doing it because they felt they had no choice, because everybody else was doing it. And for the Fed to get that information and not immediately launch a massive criminal investigation, or help the Justice Department do that, speaks to the ineffectiveness of their response.

JUAN GONZÁLEZ: Well, isn’t part of the problem, though, that some of these governments and central banks actually looked—looked aside at what was going on because they wanted to keep interest rates low, and hopefully bringing the economies back and having some kind of economic resurgence?

MATT TAIBBI: Yeah, absolutely. There’s one way to look at this and say, OK, the Bank of England and the Fed knew about this in 2008, but they had an interest, perhaps, in seeing Libor artificially suppressed, because in that panic of 2008, when everything in the markets was going haywire, it actually benefited governments by creating the image of financial soundness in the markets. But, A, that’s an irrational response, because it’s a terrible precedent to set for the government to allow manipulation of the markets in any way, and, B, the banks weren’t doing this just to make themselves look healthier, they were also doing this just to make money. They were trading against this information in what essentially was the biggest kind of insider trading you could possibly imagine. So, I don’t think that argument is going to hold water.

AMY GOODMAN: Matt, some, like you, say the Libor scandal could cost the banks tens of billions of dollars. But the Wall Street Journal editorial page has portrayed Barclays bankers as the victim. When the scandal first broke, theJournal ignored it for a week. Then, in a piece called “Barclays Bank Bash,” it wrote, quote, “Federal gumshoes are hot on the trail of banks suspected of attempting to manipulate a key interest rate. If only it were easy to separate the effect of alleged manipulation efforts by private banks from the deliberate manipulation by government,” unquote. Talk about the U.S. media coverage of the Libor scandal.

MATT TAIBBI: Well, first of all, there hasn’t been enough coverage in the United States, and that’s probably because the scandal has not yet spread to our shores. And it will, because this starts—it probably starts with Barclays and UBS and the Royal Bank of Scotland. These are the three banks that we know of already that have admitted to this conduct. But it’s eventually going to involve big American banks, as well. And we know who they are; we don’t have to mention them. But they’re the other—the American banks in the survey are also going to be involved in this.

But I think the American media generally has been slow to realize the gravity of the scandal. I think there’s a lot of fatigue out there among people with all of the financial corruption. I think news editors generally are reluctant to go there, especially with something as complicated as Libor. But what we’re going to see is a lot of coverage like what you just heard from the Wall Street Journal, where there’s going to be a suggestion that this was done in sort of a patriotic manner, in order to create an appearance of soundness in the markets during a period of crisis, that this was done at the behest of governments. And I would suspect that that’s going to be the first line of defense for these banks.

JUAN GONZÁLEZ: I wanted to ask you about something else not directly related to Libor but certainly to banks and to the—your connection to them to the Mafia: the recent revelations that HSBC, one of—the biggest bank in Europe, admitted that it was laundering tens of millions of dollars in drug money from the Mexican drug cartels, forcing one of its chief officers to resign publicly in a hearing?

MATT TAIBBI: Right, yeah, that’s obviously a big scandal, too. It probably has been overshadowed by the Libor revelations recently. We’ve obviously heard things like this before, banks not asking enough questions about where the money is coming from: the Bank of New York scandal back in the late ’90s with the Russian mob money that was flowing there by the billion; you know, to a lesser degree, the scandal involving Jon Corzine and his company, and what questions did Chase ask or not ask when they were dealing with them. There’s clearly a laxity among all the banks in asking enough questions about where money is coming from. I suspect that the HSBC scandal will help spread awareness in that regard, as well.

AMY GOODMAN: What is the solution, Matt Taibbi?

MATT TAIBBI: To the Libor situation or—

AMY GOODMAN: Yes, and overall, whether we’re talking about HSBC to—

JUAN GONZÁLEZ: To crooked banks.

AMY GOODMAN: —the power and to the administration, not to mention in this election year, the opponents, shoring up and supporting and protecting?

MATT TAIBBI: Well, the Libor scandal presents really the mother of all regulatory dilemmas, because this scandal could not have happened if it was just one or two or even three banks acting as rogue participants. The way Libor works is, they take a survey of 16 banks every day. They take the four highest numbers and the four lowest numbers, and they throw them out. They average out the remaining numbers. And what that means is that pretty much all the banks have to be in on it in order to move the needle in any one direction. So you’re talking about 16 of the world’s biggest, most powerful financial institutions. And if they’re all cooperating in what essentially is a gigantic international price-fixing operation, what do regulators do? You know, fines are clearly not going to be sufficient. Even if they pursue criminal investigations and jail a few of the traders, that’s really not going to be sufficient either. So, it really poses a tremendous question. What are they—they’re going to have to revoke some kind of privileges to all of these banks, and that will really result in a massive shake-up of the entire financial system.

 Matt Taibbi Dishes on the “Biggest Insider Trading You Could Ever Imagine” | Economy | AlterNet.

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The Elites Are Unanimous: Lower Everyone’s Wages and Standard of Living — Except They Don’t Say it Out Loud | Economy | AlterNet

Posted by Michael B. Calyn in Economy, Employment, Government, Opinion, Perspective, Wall Street, Wealth, Work Place on July 20, 2012


 

The Elites Are Unanimous: Lower Everyone’s Wages and Standard of Living — Except They Don’t Say it Out Loud

America’s 1% are in harmony on the matter that concerns them most — who gets the biggest slice of the pie.

July 19, 2012  

 

 

Calls for a bipartisan “Grand Bargain” on taxes and spending for the next decade ring out daily, if not hourly, from the politicians and pundits who dominate our political media. But the national discourse is silent on the tacit agreement both parties have already made on the future that lies ahead for the majority of working Americans: a dramatic drop in their living standards.

The United States can no longer satisfy the three great dreams that have driven most of its domestic politics since the end of World War II: the multinational corporate class’s dream of limitless profits; the military-industrial complex’s dream of global hegemony; and the dream of the people for rising incomes and expanding opportunities. One out of three? Certainly. Two out of three? Maybe. All three? No.

So far, Corporate America gets priority boarding in the economic lifeboat – with the safest seats reserved for Wall Street. Four years after the crash, the financial sector remains heavily subsidized with cheap federal loans that it uses to buy higher yielding bonds, speculate in exotic IOUs and pay outrageous salaries to those at the top. Larger than ever, they are more than ever “too big to fail.” As a result, Wall Street continues to divert the nation’s capital away from investment in sustainable high-quality jobs in America.

Next in line is the Pentagon and its vast network of corporate contractors, members of Congress with military facilities in their districts and media propagandists for the empire. The administration, along with some libertarian Republicans, insists that military spending will not be spared in the coming era of austerity, and has proposed modest cuts over the next decade. At the same time, virtually all of Washington supports the policies that require huge defense budgets, i.e., remaining in the Middle East, expanding in Latin America and containing China in its own neighborhood. The threatened across-the-board cuts in federal spending that become automatic if a long- term budget deal is not made by December will almost certainly be finessed in order to protect the military budget.

All of which leaves the American middle class on a badly listing, although not yet sinking, economic ship. Even before the financial crash, real wages for the typical American worker had been stagnant for 30 years as a result of: 1) trade and investment deregulation that shoved American workers into a brutally competitive global labor market for which they were unprepared; 2) the relentless war on unions that began with the election of Ronald Reagan in 1980; and 3) more recently, the erosion of the social safety net for low wage workers and the unemployed.

Still, workers continued to spend, and thus maintain national economic growth. While hourly wages flattened, overall family income rose because more women went to work. And cheap and accessible credit fueled everyone’s purchasing power

Today, with more women than men now employed, gains to family income from sending the wife to work are about exhausted. And given the huge overhang of non-payable debt on the part of both banks and consumers it will be a generation, if ever, before we see anther credit balloon strong enough to lift up the economy. So, now that these financial props have been knocked away, the trajectory of American incomes and living standards is a downward slope.

This decline will not be reversed by the long-awaited upturn in the currently stalled business cycle. Even with optimistic assumptions – e.g., that there will be no new recession, Europe avoids collapse, big US banks remain solvent — there is little prospect for a sustained boom in the demand for American labor sufficient to overcome the downward pressure on workers’ share of the economic pie. Cost cutting has become the central strategy for most American business, and for most of them the easiest cost to cut is labor.

The squeeze is not limited to workers in export or import-vulnerable industries. Wages and salaries are now falling across the board, in services and manufacturing sectors, among women and men, young and old. Health and pension benefits are being slashed and businesses are getting their work done with part-time and temporary workers, often supplied by labor contractors whose own survival depends on hiring labor at the cheapest rate possible.

Moreover, going to college is no longer the escape route for the vast majority of young people without elite connections or rich parents. The Bureau of Labor Statistics projects that between 2010 and 2020, nine out of 10 of the largest and fastest growing occupational categories will not require a college education. And the tenth, which includes medical professionals and college teachers, are likely to suffer dramatically in the coming age of fiscal austerity. The bright college graduates working as retail clerks at the Apple Store for $12 an hour are beginning to sense that their jobs do not represent a pause on the way up the professional ladder, but rather are a taste of their long-term future.

In the first few month of his term, Barack Obama signaled that he understood that the crisis of the middle class was more than a temporary condition of the business cycle. “We cannot rebuild this economy on the same pile of sand,” he said. “ We must build our house upon a rock… a foundation that will move us from an era of borrow and spend to one where we save and invest.”

The building blocks of a new high-wage foundation are reasonably clear: 1) large government-led investment in infrastructure, education and new technologies that can create demand for jobs in both the short and long run; 2) Strict regulation of Wall Street and new trade policies to re-channel the country’s private capital away from short-term speculation and back to long term investment in producing high value-added goods and services in America; 3) a shift in national security policy away from world dominance and toward a a narrower definition of national defense.

Three and a half years later we are still stuck in the economic sand pile. The prolonged recession has further weakened the economy’s underpinnings and the failure of a “liberal” president to restore growth has discredited government – the institution that must lead any successful transition to a new economic path.

Certainly, most of the blame lies with the reactionary Republicans whose fear of their lunatic fringe trumps loyalty to their country. And there’s been some bad luck, such as the European crisis. But Obama shares some culpability. He took up the Bush plan for no-strings Wall Street bailouts, expanded unregulated trade, cold-shouldered his union base, and has now adopted fiscal austerity as his economic priority. Whether you think the president is a wimp, a willing tool of Wall Street or a political saint mugged by right-wing thugs, the fact remains that he could or would not engage in all-out battle for the economic transformation he so eloquently promised.

The last four years have demonstrated that, taken together as a governing class, the leaders of our two-party system are currently unwilling to do what is necessary to reverse declining standards. As for the next four, given the choice, Obama is clearly the better option. Under Democrats, the slide will be less steep and rough. Whoever the “real” Romney might be, the extinction of Republican moderates among the Party’s pool of potential policymakers means that his administration will be largely staffed by conservative fundamentalists and corporate fixers who can’t wait to return us to the dog-eat-dog labor markets of the pre-New Deal.

But Obama, if re-elected, will certainly not have a greater congressional majority than he had in 2009. Moreover, given the massive campaign contributions he will have had to raise from Wall Street and the rest of Corporate America, the elite investor class will play an even more influential role in his victory. Add in the bipartisan commitment to budget austerity, and chances of a significant progressive shift in Washington’s economic policies over the next presidential term become virtually zero.

The mantra of both candidates is, “Jobs, jobs, jobs.” What they leave out is that, because they are unwilling to confront the power of Wall Street and the Pentagon, job growth in America now depends on driving labor costs lower loser and lower to attract business investment. This is the heart of the leveraged-buy out system that Romney offers to bring to the White House. And when Barack Obama cites an expanded GE plant in Kentucky as an example of the rebound of private sector jobs, the press release does not mention that workers who used to make $22 an hour are now making $14.

None of this is a secret to most of our governing class. Certainly, the CEOs and their major shareholders know it. Their economists know it. So do all but the most hopelessly ideological of policymakers. But acknowledging where future living standards are heading would require our political leaders to offer remedies that are unacceptable to Wall Street and the military-industrial complex. Safer not to look into the economic abyss and trust in good old American optimism.

Neither does the public want to stare too hard into the future. Majorities think that the next generation is going to be worse off, but they expect that they, personally, and their kids will be okay. So, while they might agree with the points made by the Wall Street Occupiers, it’s not worth the effort to join the protest. A PEW poll last fall reported that by a margin of 63-21 Americans believed that, “although there may be bad times every now and then, America will always continue to be prosperous and make economic progress.”

The American writer James Baldwin wrote, “Not everything that is faced can be changed, but nothing can be changed until it is faced.” Until Americans face that they and their kids will not be okay, and that their own personal future depends on their ability to find leaders to willing to act on that reality, the implicit Washington grand bargain will remain in force. And we will continue on the road toward lower wages, falling living standards and blasted hopes.

 The Elites Are Unanimous: Lower Everyone’s Wages and Standard of Living — Except They Don’t Say it Out Loud | Economy | AlterNet.

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Mark Cuban Sells Facebook Stake; ‘It was Gambling Money’ – MarketBeat – WSJ

Posted by Michael B. Calyn in Facebook, Wall Street on July 1, 2012


 

Mark Cuban Sells Facebook Stake; ‘It was Gambling Money’

By Steven Russolillo

Mark Cuban

Mark Cuban’s foray into Facebook didn’t last long.

The billionaire investor and Dallas Mavs owner sold his stake in the social network, less than a month after initially disclosing he had built a position in the company following its bungled initial public offering.

“I took my hit, my thesis was wrong,” Cuban said in a CNBC interview. “I thought we’d get a quick bounce just with some excitement about the stock. I was wrong, and when you’re wrong you don’t wait, you just get out. I took a beating and left.”

Late last month, Cuban disclosed on his blog that he had snatched up 150,000 shares of Facebook in three separate purchases. He said he bought 50,000 shares at $33, another 50,000 at $31.97 and 50,000 at $32.50. All three investments are currently underwater. Facebook today is up 4.2% at $31.26, but still down about 18% from its $38 IPO price.

At the time, Cuban described the move as “a trade, not an investment” and compared it to trading baseball cards.

“It was gambling money, to be honest with you,” he said on Monday. “Any time you try to time the market, you get what you deserve. Sometimes you’re right. Sometimes you’re wrong. This time I was wrong.”

Facebook’s trading debut last month was marred by technical glitches on the Nasdaq Stock Market, which left many investors confused over whether their orders to buy and sell shares had been fulfilled. The stock’s steep decline over its first month of trading left it as the worst-performing IPO of $1 billion or more for a U.S.-based company, according to Dealogic.

Cuban says much of the decline is due to basic supply and demand issues. Days before pricing the IPO, Facebook boosted the size of the deal to 421 million shares.

By comparison, LinkedIn issued only 8.4 million shares when it debuted last year. The stock more than doubled durings its first day of trading. ”If Facebook did the same, the stock would be at about $200 right now,” Cuban says.

Cuban also had strong words about the role of high frequency trading in today’s market.

“High-frequency trading has zero place in the market,” he said. “They should get rid of it altogether because it’s an unquantifiable risk that can impact the market in ways that we can’t even define.”

 Mark Cuban Sells Facebook Stake; ‘It was Gambling Money’ – MarketBeat – WSJ.

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JPMorgan’s Other Big Gamble

Posted by Michael B. Calyn in Wall Street, Banking on July 1, 2012


By Pam Martens: June 29, 2012

 

 

Jamie Dimon, Chairman and CEO of JPMorgan Chase, at House Financial Services Hearing, June 19, 2012

 

Recent settlements by the Securities and Exchange Commission (SEC) have sent a dangerous message to Wall Street: feel free to lie freely to investors and shareholders as long as you have deep pockets. 

In 2007, Citigroup told investors it had $13 billion in subprime exposures, knowing the figure was in excess of $50 billion.  It got caught and on July 29, 2010 paid $75 million to settle charges with the SEC.  Its CFO, Gary Crittenden, was fined a puny $100,000 and the head of its Investor Relations Department, Arthur Tildesley, was fined an even punier $80,000.  That sent a clear message to Wall Street, lying about the risks you are taking or what’s on your balance sheet results in a slap on the wrist and some chump change.  Lying has now morphed into its own profit center. 

Also in July 2010, Goldman Sachs settled with the SEC for $550 million over its infamous Abacus deal where a hedge fund manager, John Paulson, hand picked the collateralized debt obligations that went into the deal and then wagered they would decline in value.  Goldman was aware of this and declined to tell investors that bought into the deal. 

Under the Securities Exchange Act of 1934, persons and/or corporations that make material omissions or misrepresentations can be charged in civil actions by the SEC as well as criminal securities fraud actions by the Department of Justice.  

On June 19, 2012, when SEC Chair, Mary Schapiro, testified before the House Financial Services Committee regarding the $2 billion and growing losses at JPMorgan Chase, she indicated that the agency is reviewing the appropriateness of the disclosures that JPMorgan Chase made to the public. 

Schapiro testified: “The SEC’s rules require comprehensive disclosure about the risks faced by a public company, including line item requirements for disclosure of specific information about risk…For example, Item 305 of Regulation S-K requires quantitative disclosure of a company’s market risk exposures, which includes exposures related to derivatives and other financial instruments.” 

According to securities law experts, prosecutions by the SEC and DOJ for misstatements or omissions are not limited to SEC filings made under the 1934 Act. Any manner of publicized  misstatement or omission can create liability.  Courts have ruled that any deceit that materially affects the purchase or sale of securities is actionable.  Lying through omission is legally interpreted as making statements that present an incomplete or inaccurate picture, and withholding other material information necessary to present the entire truth.  

In a landmark 1976 U.S. Supreme Court decision, TSC Industries, Inc. v. Northway, Inc.,   Justice Thurgood Marshall, writing for the court, explained:

“Lying through omission consists of making statements that paint an incomplete or inaccurate picture, and not revealing other material information necessary to present the entire truth. The federal securities laws require public companies, whenever they speak, to disclose all material information that would be necessary to present the truth entirely.” 

Against that backdrop comes the 10Q (first quarter) financial filing that JPMorgan Chase submitted to the SEC.  The relevant portion is as follows: 

“Since March 31, 2012, CIO [Chief Investment Office of JPMorgan Chase] has had significant mark-to-market losses in its synthetic credit portfolio, and this portfolio has proven to be riskier, more volatile and less effective as an economic hedge than the Firm previously believed. The losses in CIO’s synthetic credit portfolio have been partially offset by realized gains from sales, predominantly of credit-related positions, in CIO’s AFS securities portfolio. As of March 31, 2012, the value of CIO’s total AFS securities portfolio exceeded its cost by approximately $8 billion. Since then, this portfolio (inclusive of the realized gains in the second quarter to date) has appreciated in value. 

“The Firm is currently repositioning CIO’s synthetic credit portfolio, which it is doing in conjunction with its assessment of the Firm’s overall credit exposure. As this repositioning is being effected in a manner designed to maximize economic value, CIO may hold certain of its current synthetic credit positions for the longer term.” 

Nothing in this statement suggests that a momentous event has occurred – momentous enough to bring in the Department of Justice, the FBI, three Congressional hearings and the shaving, at one point, of $30 billion off the market capitalization of the firm.  

What the statement does not capture is the following: JPMorgan Chase was selling tens of billions of dollars of credit default insurance to hedge funds in return for a large up-front payment and a quarterly income stream.  It sold that protection in an off-the-run (outdated) derivatives index that is illiquid.  AIG Financial Products blew up the behemoth AIG Insurance selling credit default insurance.  The U.S. taxpayer had to bail out AIG and pay off that insurance to Wall Street firms like Goldman Sachs and JPMorgan Chase.  That was just a little over three years ago.  Should Congress and the regulators be caught off guard once again, there will be hell to pay. 

On May 10, 2012, the same day JPMorgan filed its 10Q with the SEC, JPMorgan Chairman and CEO, Jamie Dimon, said on a conference call with analysts that the existing credit derivative losses were $2 billion and could grow.  What he did not mention was anything about an internal document existing at that time that said the losses could grow to $9 billion.  The difference between $2 billion and $9 billion is a very material number.  

On June 29, 2012, Jessica Silver-Greenberg and Susanne Craig reported in the New York Times that “In April, the bank generated an internal report that showed that the losses, assuming worst-case conditions, could reach $8 billion to $9 billion, according to a person who reviewed the report.”  The operative words in that sentence are “April” and “$9 billion.” 

The head of the Chief Investment Office in April was Ina Drew.  Drew reported directly to Dimon. He admitted that in his testimony to Congress.  If Jamie Dimon withheld from shareholders and investors that an internal report existed on May 10, 2012  (the date the firm’s 10Q was filed with the SEC and the date he personally spoke with analysts) indicating that these derivative losses could reach $9 billion, charges are most likely to be brought and massive class action lawsuits will, indeed, commence. 

Oh what a tangled web we weave when first we practice to deceive. 

 JPMorgan’s Other Big Gamble.

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Washington’s Blog – Business, Investing, Economy, Politics, World News, Energy, Environment, Science, Technology

Posted by Michael B. Calyn in Banking, Money, Opinion, Perspective, Society, Wall Street, Wealth, WTF on June 29, 2012


Dude, Why Did They Steal My Net Worth?

“I have no problem with people becoming billionaires—if they got there by winning a fair race, if their accomplishments merit it, if they pay their fair share of taxes, and if they don’t corrupt their society. Most of them became wealthy by being well connected and crooked. And they are creating a society in which they can commit hugely damaging economic crimes with impunity, and in which only children of the wealthy have the opportunity to become successful. That’s what I have a problem with. And I think most people agree with me.” – Charles Ferguson – Predator Nation

the frog and the scorpion tale 619555 WHO DESTROYED THE MIDDLE CLASS PART 3

It is clear to me that a small cabal of politically connected ultra-wealthy psychopaths has purposefully and arrogantly stripped the middle class of their wealth and openly flaunted their complete disregard for the laws and financial regulations meant to enforce a fair playing field. Why did they gut the middle class in their rapacious appetite for riches? Why did the scorpion sting the frog while crossing the river, dooming them both? It was his nature. The same is true for the hubristic modern robber barons latched on the backs of the middle class. Their appetite for ever greater riches will never be mollified. They will always want more. They promise not to destroy the middle class, as that will surely extinguish the last hope for a true economic recovery built upon savings, investment and jobs, but it is their nature to destroy. A card carrying member of the plutocracy and renowned dog lover, Mitt Romney, revealed a truth not normally discussed by those running the show:

“I’m not concerned about the very poor. We have a safety net there. I’m not concerned about the very rich, they’re doing just fine.”

 

The data from the Fed report confirms Romney’s assertion. The poorest 20% were the only household segment that saw an increase in their real median income between 2007 and 2010, while the richest 10% saw only a modest 5% decrease in their $200,000 plus, annual incomes. Meanwhile the middle class households experienced a brutal 8% to 9% decline in real income. Table 2 in Part 2 of this article reveals why the poorest 20% were able to increase their income. Transfer payments (unemployment, welfare, food stamps, SSDI) increased from 8.6% of their income in 2007 to 11.1% in 2010. Government transfer payments rose from $1.7 trillion in 2007 to $2.3 trillion today, a 35% increase in five years. I’m sure the bottom 20% are living high on the hog raking in that $13,400 per year. Think about these facts for just a moment. There are 23 million households in this country with a median annual household income of $13,400. That means half make less than that. There are 58 million households that have a median household income of $45,800, with half making less than that.

 

The reason Mitt Romney isn’t concerned about the very poor is because his only interaction with them is when they cut the lawn at one of his six homes. The truth is the bottom 20% are mostly penned up in our urban ghettos located in Detroit, Chicago, Philadelphia, NYC, LA, Atlanta, Miami, and the hundreds of other decaying metropolitan meccas. They generally kill each other and only get the attention of the top 10% if they dare venture into a white upper class neighborhood. They are the revenue generators for our corporate prison industrial complex – one of our few growth industries. They provide much of the cannon fodder for our military industrial complex. They are kept ignorant and incapable of critical thought by our Department of Education controlled public school system. The welfare state is built upon the foundation of this 20%. It is certainly true that the bottom 30 million households in this country, from an income standpoint, do receive hundreds of billions in entitlement transfers, but Table 2 clearly shows that 80% of their income comes from working. The annual $72 billion cost for the 46 million people on food stamps pales in comparison to the hundreds of billions being dispensed to the Wall Street banks by Ben Bernanke and Tim Geithner, and the $1 trillion per year funneled to the corporate arm dealers in the military industrial complex. The Wall Street maggots (i.e. J.P. Morgan) crawl around the decaying welfare corpse, extracting hundreds of millions in fees from the EBT system and the SNAP program as they encourage higher levels of spending.

This is all part of the diversion. Forty five years after the War on Poverty began, there are 49 million Americans living in poverty. That’s a solid good return on the $16 trillion spent so far. It’s on par with the 16 year zero percent real return in the stock market. We have produced a vast underclass of ignorant, uneducated, illiterate, dependent people who have become a huge voting block for the Democratic Party. Politicians, on the left, promise more entitlements to these people in order to get elected. Politicians on the right will not cut the entitlements for fear of being branded as uncaring. The Republicans agree to keep the welfare state growing and the Democrats agree to keep the warfare state growing -bipartisanship in all its glory. And the middle class has been caught in a pincer movement between the free shit entitlement army and the free shit corporate army. The oligarchs have been incredibly effective at using their control of the media, academia and ideological think tanks to keep the middle class ire focused upon the lower classes. While the middle class is fixated on people making $13,400 per year, the ultra-wealthy are bribing politicians to pass laws and create tax loopholes, netting them billions of ill-gotten loot. These specialists at Edward Bernays propaganda techniques were actually able to gain overwhelming support from the middle class for the repeal of estate taxes by rebranding them “death taxes”, even though the estate tax only impacts 15,000 households out of 117 million households in the U.S. The .01% won again.

It is easy to understand how the hard working middle class is so easily manipulated by the corporate fascists into believing their decades of descent to a lower and lower standard of living is the result of the lazy good for nothings at the bottom of the food chain sucking on the teat of state with their welfare entitlements. I drive through the neighborhoods of West Philadelphia every day, inhabited by the households with a net worth of $8,500 and annual income of $13,400. They inhabit crumbling hovels worth less than $25,000, along pothole dotted streets strewn with waste, debris and rubbish. More than half the people in this war zone are high school dropouts, over 30% are unemployed, and drug dealing is the primary industry. When a drug dealer becomes too successful and begins to cut into the profits of the “legitimate” oligarch sanctioned drug industry, he is thrown into one of our thriving prisons. Marriage is an unknown concept. The life expectancy of males is far less than 79 years old. But something doesn’t quite make sense. Every hovel has a Direct TV satellite dish. The people shuffling around the streets all have expensive cell phones. There are newer model cars parked on the streets, including a fair number of BMWs, Mercedes, Cadillac Escalades and Volvos. How can this be when their annual income is $13,400 and they have $8,500 to their names?

This is where our friendly neighborhood Wall Street oligarchs enter the picture. These downtrodden people are not bright. They are easily manipulated and scammed. They believe driving an expensive car and appearing successful is the same as being successful. Therefore, they are easily susceptible to being lured into debt. Millions of these people represented the “subprime” mortgage borrowers during the housing bubble. The tremendous auto “sales” being reported by the mainstream media in an effort to boost consumer confidence about an economic recovery, are being driven by subprime auto loans from Ally Financial (85% owned by the U.S. Treasury/you the taxpayer) and the other government back stopped Wall Street banks. This is the beauty of credit. The mega-lenders reap tremendous profits up front, the illusion of economic progress is created, poor people feel rich for a while, and when it all blows up at a future date the middle class taxpayer foots the bill. Real wages for the 99% have been falling for three decades. You make poor people feel wealthy by providing them easy access to vast quantities of cheap debt. I’m a big fan of personal responsibility, but who is the real malignant organism in this relationship? The parasite banker class, like a tick on an old sleepy hound dog, has been blood sucking the poor and middle class for decades. They have peddled the debt, kept the poor enslaved, and have used their useful idiots in the media to convince millions of victims to blame each other through their skillful use of propaganda. They maintain their control by purposely creating crisis, promoting hysteria, and engineering “solutions” that leave them with more power and wealth, while stripping the average citizen of their rights, liberty, freedom and net worth (i.e. Housing Bubble to replace Internet Bubble, Glass-Steagall repeal, Patriot Act, TARP, NDAA, SOPA). Jesse cuts to the heart of the matter, revealing the darker side of our human nature:

 

“Sometimes when faced with problems that are confusing and troubling it is easier to think what someone tells you to think, particularly something that touches a deep and dark nerve in your nature, rather than carry the burden and ambiguity of struggling with the facts and thinking for yourself. Repeating a party line is a shorthand way of avoiding real thought. And the predators are always there to take advantage of it. They welcome trouble and often foment crisis in order to advance their agendas.”

“Anyone can be misled by a clever person, and no one likes to readily admit that they have been had. It is a sign of character and maturity to realize this, and admit you were deceived, and to demand change and reform. But some people cannot do this, even when the facts of the deception are revealed. It seems as though the more incorrect that the truth shows them to be, the louder and more strident they become in shouting down and denying the reality of the situation. And anyone who denies their perspective becomes ‘the other,’ someone to be feared and hated, shunned and eliminated, one way or the other.”

 Washington’s Blog – Business, Investing, Economy, Politics, World News, Energy, Environment, Science, Technology.

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