Coup d’etat in America » New Jersey CFO

Most of you understand this.

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Nov 052011

One of the things that I suspect has brought many of you to Naked Capitalism is the hard lesson that conventional wisdom in finance and economics has been very costly to ordinary citizens around the world. If you had believed the prevailing world view of early 2007, that markets were efficient and bad actors would of course be found out and shunned, that were were in the midst of a Great Moderation and could expect to enjoy continued prosperity, punctuated by shallow recessions, and that financial innovation was a boon and therefore to be encouraged, you had an ugly awakening. The global financial crisis imposed tremendous costs on investors and society at large, via unemployment, a housing bust, plunging tax revenues, cuts in government services and increasing political discord.

Yet no one in power before the crisis has been punished or even suffered much. In fact, 2009 and 2010 Wall Street bonuses exceeded the record levels of 2007. As former IMF chief economist Simon Johnson described in a May 2009 Atlantic article, the US instead suffered a quiet coup, with the top end of the financial services industry becoming more concentrated, more powerful, even more concentrated and more firmly in charge of the political apparatus.

Most of you understand this. It’s awfully hard not to notice that we have a two-tier system of justice, in which the major financial firms get to flout the law and violate their own contracts, yet are able to get their agreements enforced against seemingly everyone, from credit card, mortgage, and student debt borrowers to municipalities who entered into risk-laden swaps they didn’t understand to nations like Greece, where a clearly insolvent borrower cannot get a deep enough restructuring out of fear of triggering payouts on credit default swaps. But complexity, leverage, and opacity have been the big banks’ best friends in executing this program of looting. You’ve come here to get educated so you won’t be so easily taken next time.

So the lies that the elite financiers have peddled appeared to be free, when in fact, many of them were sold via clever messaging and lobbying.
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At Naked Capitalism

“forgive us our debts, as we forgive our debtors”: an American year of Jubilee

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Oct 312011

The American financial system seems ultramodern in its complexity, but it is actually ancient in the brutal ways wealth asserts power over others. The earliest societies were torn by conflicts between lenders and borrowers, the rich versus the poor. They were compelled to fashion hard rules and put restraints on lending to curb the cruelties and promote a moral minimum for social justice. Nearly every country and culture embedded these values in religious tenets that governments enforced. Anthropologist David Graeber asserts provocatively in his book Debt: The First 5,000 Years that the power struggles over debt were probably the starting point for developing civilization’s moral codes. The arguments typically began when kings or landowners lent some of their surplus wealth to peasant farmers, then took away the debtors’ property if they failed to repay the loans. In olden days, the creditor would seize the debtor’s livestock and vineyard, perhaps even his children to be enslaved as household servants, until the debts were repaid. If the failure of borrowers persisted, the wealthy lenders would wind up owning all the property, with the peasants reduced to tenant farmers on the land they had once owned. The negative cycle stopped when the peasants could no longer borrow because they had nothing left for lenders to claim in default. Economic life at that point was frozen or depressed, no longer functioning. In a rough sense, this resembles what happened to our economy in the financial crisis. Debtors were tapped out, up to their eyes in debt, and creditors recognized that they could not lend to them anymore without losing their money. In modern economies, no one takes away their children, but they do seize homes and cars and other assets. The ancient Hebrew society worked out a solution for recurring debt crises—you can find it in the Bible. Every seven years (in some interpretations, every fifty) the cycle of debt accumulation was erased by a declaration of general forgiveness. This was called the year of jubilee, and Christianity embraced the same moral principles (“forgive us our debts, as we forgive our debtors”). Property was returned to the original owners, and children and slaves were freed. Everyone was redeemed. The economy was freed to start over again. Graeber thinks Judaism’s reform laws were probably influenced by the Babylonians, who issued “clean slate” edicts when excessive debt accumulation threatened social crisis. Graeber notes that nearly every society, ancient and modern, shares moral confusion about debt, with contradictory attitudes. On the one hand, “Paying back money one has borrowed is a simple matter of morality.” On the other hand, “Anyone in the habit of lending money is evil.” Americans share this ambivalence. Here is what Americans can learn from the ancients: severe inequality of wealth and income is not just a question of morality. Inequality is the fundamental source of the disorder that leads to financial crisis and chokes off the economy. Ancient religious principles like the limits on interest rates were a practical way of maintaining balance in economic life. Taking away those rules—as US politicians did when they repealed prudent regulations of banking and finance—in effect authorized the growing inequality that eventually leads to chaos. Modern economists and their supposed “science” generally ignore the ancient wisdom. Most would probably dismiss the connection as folklore. Some economists study inequality and what drives it. Others study financial fragility and macroeconomic volatility. But the two subjects are seldom addressed as underlying cause and effect. Gross concentrations of money at the top help explain why the system eventually stalls out. This is a basic insight that ought to inform the agenda for recovery. Inequality matters.

Economists Michael Kumhof and Romain Rancière wrote a breakthrough paper for the IMF that made the connection between inequality and financial crisis. “The crisis,” they wrote, “is the ultimate result, after a period of decades, of a shock to…two groups of households, investors who account for 5% of the population, and whose bargaining power increases, and workers who account for 95% of the population.” The 5 percent, broadly speaking, lend to the 95 percent, and in so doing gain still greater wealth and power. The shock comes when the creditor class suddenly realizes that the borrowers are drowning in debt and cannot possibly absorb any more. At that point, financial assets connected to consumer debt are dumped and prices crash, much as they did in 2007. The authors add, “To our knowledge, our framework is the first to provide an internally consistent mechanism linking the empirically observed rise in income inequality…and the risk of a financial crisis.” It took three decades of lopsided borrowing to produce the breakdown, Kumhof and Rancière explain, but the ominous trend was evident for years. In the early 1980s the 95 percent had debts equal to about 65 percent of their income. By 2006 that figure had risen to 140 percent. They were devoting so much of their paychecks to making payments on old debt—credit cards, equity lines and mortgages—there was nothing left to make the payments on new debt. Defaults and bankruptcies were already swelling. The collapse came when creditors grasped the danger and started selling off their mortgage bonds and loans to consumers. It seems odd that the financial interests, with their brilliant analysts and high-speed computers, didn’t see the nature of the crisis until it was breaking over their heads. They may have been blinded by the fabulous wealth they were harvesting. Kumhof and Rancière point out that the same ominous combination—a run-up of debt accompanied by gaping inequality—preceded the crash of 1929. Greed may inspire optimism. But why did ordinary debtors fall into this trap? The standard line is that they, too, were blinded by greed, eager for consumer pleasures they couldn’t afford. This is true for some, but the explanation libels most working people. Wage stagnation started in the 1970s and spread widely in the Reagan era. Typically, as incomes faltered, families faced two bad choices—either go deeper into debt or surrender their middle-class standard of living. Naturally, most people tried to hang on to what they had. The responses to this crisis are well-known. People worked more—women and teenagers entered the workforce, family members took two or three jobs. And they borrowed more, paying the bills with credit cards. In these terms, average families were making heroic efforts to maintain their standard of living. They were doomed to fail unless dramatic economic reforms improved their lot. University of California economist Clair Brown predicted nearly two decades ago in her landmark study of American consumption that sooner or later working people would have to retreat to lower levels of consuming. Working harder and borrowing more had sustained them for twenty years, but neither of these remedies was repeatable. At some point the merry-go-round would have to stop. The retreat is now in full flight. Homeownership has declined by 1.1 percent over the past decade. Wages are stagnant or falling. Foreclosures are tearing through communities, and falling home prices are destroying family equity. Americans, as Whalen says, are experiencing the reverse New Deal.

This self-serving arbitrariness

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Sep 242011

“Yesterday, the textbook was thrown out the window. All asset classes saw sudden and sharp moves far in excess of normal volatility patterns. To an old timer, that points to one conclusion. Liquidation. Wide-spread liquidation across asset classes. Currencies, bonds, commodities and stocks all moved swiftly and sharply in a direction that screamed – Seek safety! Raise cash! Get liquid…

All of that had a quick and discernible negative impact on markets. But, the selling was far more pervasive and dramatic than simply a conscious adjustment of positions based upon new data. Thursday’s action screamed liquidation – and not all of it voluntary.”

Art Cashin, 22 September 2011

Every time the central banks and their affiliates get desperate, some economic essayist trots out an outlandish argument about why gold is a ‘barbarous relic.’ Here is one that tops even the almost petulant argument of Willem Buiter in 2009.

The Price of Gold in 2160 – Statsguy and James Kwak

I had to read this essay twice to make sure it just was not satire. I can summarize my reaction by saying that finding gold in outer space with assumed technologies speaks to supply, but the author does not present any assumptions about population, economics structures, and of course future demand.

The method by which gold is formed in relatively rare supernova events is fairly well known, and its distribution relative to other elements and compounds is not completely eccentric, at least not as random and eccentric as pseudo-scientific economic theories might become these days.

The author’s premise of the discovery of new bullion supplies in outer space is analogous to the discovery of the New World by Europeans, and the remarkable finds of gold and silver on those two vast continents.

And yet here we are today.

Some might say that the author was merely saying in a cute way that commodity based currencies always fail, with an example being salt or Yap stones as Mr. Buiter had argued to greater effect.

And I would say that all currencies do go in and out of favor in their time, since there is an element of relativism in value that can be enforced by ruling authorities, who themselves tend to come and go, even if in their time these authorities might seem invincible, their empires intended to last for a thousand years.

But some stores of value, not based on passing utilitarian criteria or force, do tend to be resilient, and come back again and again, and retain an element of value from generation to generation. Or as some might with a more profound understanding of money might say, they maintain the confidence of their steadfastness that is a pre-requisite of sound money that is difficult to maintain by mere force of will.

As some historians of money have pointed out, the Federal Reserve was initially set up to emulate this type of external immutability of value in what later became a purely fiat currency. As men like Andrew Jackson would have predicted, they failed in exactly the same ways and for the same reasons that every other attempt at this has failed throughout history.

All systems are prone to corruption and decay, but none so much as those that rely exclusively on the goodness and wisdom of small groups of powerful men, especially when acting in secret.

It does seems quite cheeky for a modern economist to criticize a natural store of value with a 5000 year history, while standing on the platform of a purely fiat currency, given the short half life of every fiat currency throughout history. They may be recreated and devalued, but they never retain much of their value and character, with the only remnant their name.

I hear the sounds of printing presses over the horizon. Get ready for Quantitative Easing European style, and massive European bailouts, and increasingly absurd arguments from the econo-sphere as they avoid the subject of justice for the sake of expediency.

I have some limited sympathy for the dilemma facing the increasingly desperate western central banks, and understand their rationalizations. But they are doing something that is the very epitome of moral hazard, and abuse of power, in their attempts to stabilize the unsustainable, without allowing for meaningful change and reform.

The heart of the issue is that the existing monetary and financial system is becoming increasingly arbitrary and corrupt. A relatively small group of interconnected crony capitalists wishes to create a digital money out of nothing, and distribute it increasingly as they will, to whom they will.

And this is the basis of my resentment with this policy abuse, and the irritation with the assault on reason by those in the financial demimonde engaging in what might be politely called perception management.

This self-serving arbitrariness, even if done for ‘good motives,’ is the very reason why all fiat currencies fail. No matter how you want to rationalize it they are going to create money out of nothing, and give it to whom they will, while corrupting the political system in the process.

And the cumulative results of this abuse of power are corrosive to society. Lawless example by a ruthless few brings out the worst in all the people, always. And that is a shame.

“Our government teaches the whole people by its example. If the government becomes the lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy.”

Louis D. Brandeis

Gold Daily and Silver Weekly Charts – Liquidation Panic – Martian Gold – Comex Hikes Margins

JESSE’S CAFE

A lot of people have asked why New York Attorney General Eric Schneiderman is going after the banks as aggressively as he is. It’s almost unbelievable that one lone elected official, who happens to have powerful legal tools at his disposal, is doing something that no one with any serious degree of power has done. So what is the secret? What kind of machinations is he undertaking that no one else has been able to do? I’ve known Schneiderman for a few years, back when he was a state Senator working to reform the Rockefeller drug laws. And my answer to this question is pretty simple. He wants to. That’s it. Eric Schneiderman is investigating the banks because he thinks it’s the right thing to do. So he’s doing it. This guy has thought about his politics. He wrote an article about how he sees politics in 2008 in the Nation, and in his inaugural speech as NY AG he talked about the need to restore faith in both public and private institutions. Free will still counts for something, apparently. In all the absurdly stupid punditry, the simple application of free will to our elected officials goes missing. Yeah, Obama got money from Wall Street. But Obama is choosing to pursue a policy of foreclosures and bank bailouts not because of any grand corporate scheme. He just wants to. He thinks it’s the right thing to do, and he’s doing it. If you don’t think it’s the right thing to do, then you shouldn’t be disappointed in him any more than you might have been disappointed in Bush. Obama is not trying to do the opposite of what he’s doing, he’s not repeatedly suckered by Republicans, and he isn’t naive or stupid. Obama is simply doing what he thinks is right. So is Eric Schneiderman. So is Tom Miller. So are any number of elected officials out there. In positions of power, the best expression I heard is that “up there the air is thin”. That is, you have enormous latitude, if you want to use it. Power can be wielded creatively and effectively on behalf of whatever it is the wielder wants. Now of course there are constraints, plenty of them. Smart politicians spend their time working to maximize the constraints they want to impose and weakening the ones they want to overcome. But the basic Reaganite liberal argument defending supplication towards Obama these days is that Obama is “disappointing”. In this line of thought, powerful corporate interests and Republicans are preventing him from enacting what his real agenda would be were he unfettered by this mean machine. Eric Schneiderman, who is in a far less powerful position as New York Attorney General, shows that this is utter hogwash. Obama is who he is, and anyone who thinks otherwise is selling something.

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Matt Stoller: Power Politics – What Eric Schneiderman Reveals About Obama

Dow(n) For The Count

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Aug 062011

Investors were staggered yesterday. Stocks got walloped.

Dow down 512 points.

Today, bond yields are falling… oil is below $86. London, Paris, Frankfurt – all down heavily. Only gold has resisted the general rout. It lost only $7 yesterday.

Why?

The reason is debt. It won’t go away. It won’t say ‘adios’ and get on a bus. Like a bad houseguest, it won’t leave!

The feds have tried to ignore it. They’ve tried to postpone it. They’ve tried make the problem go away by stimulating the economy to grow faster.

But nothing has worked. Day by day the debt grows larger… And day by day, the moment of truth grows closer.

What truth?

That you can’t make excess debt disappear. It has to be paid…either by the borrower, or by the lender. Someone has to suffer.

Why is that? Because borrowing takes from the future. Sooner or later, the future shows up and wants to be paid. It wants its ‘pound of flesh.’ Its recompense. It wants what is due.

Yes, dear reader, a high speed train may have changed the world of travel. The invention of Viagra may have changed man’s love life. And don’t forget Facebook; it’s had a big effect on social life. All around us is Progress with a capital ‘P’!

But where is the progress in the world of money? How is debt today any different from debt 1,000 years ago? How are bankers’ mistakes any different? They lent too much to the wrong people in the time of Caesar; they make the same mistakes today.

And what about money itself? There was…Read more…

Opinion: GOP’s ‘alternate universe’ Matt Stoller, Politico

An intellectually honest conservative faction might be arguing that this is what it seeks — a revolutionary change.

Meanwhile, Republicans assert that unemployment benefits are what’s stopping the nation’s jobless from finding work, though the U.S. lost millions of jobs in the economic crisis and employment is now higher than 9 percent.

So there is little discussion about extending unemployment insurance, even as benefits run out, because the deficit is the GOP’s gravest economic emergency. There’s no debate about ways to address high unemployment — just deny reality and enforce it with the Leninist-style propaganda arm of Fox News, Rush Limbaugh and Glenn Beck.

But there is a big problem. America is simply not set up to handle one political party that bases its political organizing on an alternate reality and the raw power of propaganda. The U.S. government, and our public debates, are organized around the idea that there’s some measure of good faith in both parties, some common basis on which to make decisions.

I do not think most Republicans realize this is how their party operates — but the more cynical high-level operatives certainly do.

When George W. Bush ran for president in 2000, one of his campaign promises was to avoid nation-building. His presidency, of course, shifted America toward endless war and occupation of foreign countries — based on overt deceptions, like implying there was a link between the Sept. 11 terrorists and Saddam Hussein. Bush had his secretary of state, Colin Powell, hold up a vial of powder at the U.N. to show we had allegedly solid intelligence about Hussein’s weapons capabilities.

Back in 2004, a Bush administration official laid out what is now clearly the Republican Party’s guiding philosophy. The official spoke to a journalist as though he were from a foreign land — since he hailed from “what we call the reality-based community.”

“When we act,” the official said, “we create our own reality. And while you’re studying that reality — judiciously, as you will — we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors … and you, all of you, will be left to just study what we do.”

It’s unclear whether the Republicans want to, or even can, leave this alternate universe that they have constructed. Unfortunately, it’s also unclear whether our society can survive it.

Matt Stoller worked on the Dodd-Frank financial reform law and Federal Reserve transparency issues as a staffer for Rep. Alan Grayson (D-Fla.). He is now a fellow at the Roosevelt Institute.

During the Depression bankers became so unpopular that bank robbers, such as Bonnie and Clyde, became folk heroes.^[54]

We need an FDR, not a toadie for the oligarchy

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Jul 242011

“On the eve of a national election, it is well for us to stop for a moment and analyze calmly and without prejudice the effect on our Nation of a victory by either of the major political parties.

The problem of the electorate is far deeper, far more vital than the continuance in the Presidency of any individual. For the greater issue goes beyond units of humanity—it goes to humanity itself.

In 1932 the issue was the restoration of American democracy; and the American people were in a mood to win. They did win. In 1936 the issue is the preservation of their victory. Again they are in a mood to win. Again they will win.

More than four years ago in accepting the Democratic nomination in Chicago, I said: “Give me your help not to win votes alone, but to win in this crusade to restore America to its own people.”

The banners of that crusade still fly in the van of a Nation that is on the march.

It is needless to repeat the details of the program which this Administration has been hammering out on the anvils of experience. No amount of misrepresentation or statistical contortion can conceal or blur or smear that record. Neither the attacks of unscrupulous enemies nor the exaggerations of over-zealous friends will serve to mislead the American people.

What was our hope in 1932? Above all other things the American people wanted peace. They wanted peace of mind instead of gnawing fear.

First, they sought escape from the personal terror which had stalked them for three years. They wanted the peace that comes from security in their homes: safety for their savings, permanence in their jobs, a fair profit from their enterprise.

Next, they wanted peace in the community, the peace that springs from the ability to meet the needs of community life: schools, playgrounds, parks, sanitation, highways—those things which are expected of solvent local government. They sought escape from disintegration and bankruptcy in local and state affairs.

They also sought peace within the Nation: protection of their currency, fairer wages, the ending of long hours of toil, the abolition of child labor, the elimination of wild-cat speculation, the safety of their children from kidnappers.

And, finally, they sought peace with other Nations—peace in a world of unrest. The Nation knows that I hate war, and I know that the Nation hates war.

I submit to you a record of peace; and on that record a well-founded expectation for future peace—peace for the individual, peace for the community, peace for the Nation, and peace with the world.

Tonight I call the roll—the roll of honor of those who stood with us in 1932 and still stand with us today.

Written on it are the names of millions who never had a chance—men at starvation wages, women in sweatshops, children at looms.

Written on it are the names of those who despaired, young men and young women for whom opportunity had become a will-o’-the-wisp.

Written on it are the names of farmers whose acres yielded only bitterness, business men whose books were portents of disaster, home owners who were faced with eviction, frugal citizens whose savings were insecure.

Written there in large letters are the names of countless other Americans of all parties and all faiths, Americans who had eyes to see and hearts to understand, whose consciences were burdened because too many of their fellows were burdened, who looked on these things four years ago and said, “This can be changed. We will change it.”

We still lead that army in 1936. They stood with us then because in 1932 they believed. They stand with us today because in 1936 they know. And with them stand millions of new recruits who have come to know.

Their hopes have become our record.

We have not come this far without a struggle and I assure you we cannot go further without a struggle.

For twelve years this Nation was afflicted with hear-nothing, see-nothing, do-nothing Government. The Nation looked to Government but the Government looked away. Nine mocking years with the golden calf and three long years of the scourge! Nine crazy years at the ticker and three long years in the breadlines! Nine mad years of mirage and three long years of despair! Powerful influences strive today to restore that kind of government with its doctrine that that Government is best which is most indifferent.

For nearly four years you have had an Administration which instead of twirling its thumbs has rolled up its sleeves. We will keep our sleeves rolled up.

We had to struggle with the old enemies of peace—business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.

They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.

Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me—and I welcome their hatred.

I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second Administration that in it these forces met their master.

The American people know from a four-year record that today there is only one entrance to the White House—by the front door. Since March 4, 1933, there has been only one pass-key to the White House. I have carried that key in my pocket. It is there tonight. So long as I am President, it will remain in my pocket.

Those who used to have pass-keys are not happy. Some of them are desperate. Only desperate men with their backs to the wall would descend so far below the level of decent citizenship as to foster the current pay-envelope campaign against America’s working people. Only reckless men, heedless of consequences, would risk the disruption of the hope for a new peace between worker and employer by returning to the tactics of the labor spy.

Here is an amazing paradox! The very employers and politicians and publishers who talk most loudly of class antagonism and the destruction of the American system now undermine that system by this attempt to coerce the votes of the wage earners of this country. It is the 1936 version of the old threat to close down the factory or the office if a particular candidate does not win. It is an old strategy of tyrants to delude their victims into fighting their battles for them.

Every message in a pay envelope, even if it is the truth, is a command to vote according to the will of the employer. But this propaganda is worse—it is deceit.

They tell the worker his wage will be reduced by a contribution to some vague form of old-age insurance. They carefully conceal from him the fact that for every dollar of premium he pays for that insurance, the employer pays another dollar. That omission is deceit.

They carefully conceal from him the fact that under the federal law, he receives another insurance policy to help him if he loses his job, and that the premium of that policy is paid 100 percent by the employer and not one cent by the worker. They do not tell him that the insurance policy that is bought for him is far more favorable to him than any policy that any private insurance company could afford to issue. That omission is deceit.

They imply to him that he pays all the cost of both forms of insurance. They carefully conceal from him the fact that for every dollar put up by him his employer puts up three dollars three for one. And that omission is deceit.

But they are guilty of more than deceit. When they imply that the reserves thus created against both these policies will be stolen by some future Congress, diverted to some wholly foreign purpose, they attack the integrity and honor of American Government itself. Those who suggest that, are already aliens to the spirit of American democracy. Let them emigrate and try their lot under some foreign flag in which they have more confidence.

The fraudulent nature of this attempt is well shown by the record of votes on the passage of the Social Security Act. In addition to an overwhelming majority of Democrats in both Houses, seventy-seven Republican Representatives voted for it and only eighteen against it and fifteen Republican Senators voted for it and only five against it. Where does this last-minute drive of the Republican leadership leave these Republican Representatives and Senators who helped enact this law?

I am sure the vast majority of law-abiding businessmen who are not parties to this propaganda fully appreciate the extent of the threat to honest business contained in this coercion.

I have expressed indignation at this form of campaigning and I am confident that the overwhelming majority of employers, workers and the general public share that indignation and will show it at the polls on Tuesday next.

Aside from this phase of it, I prefer to remember this campaign not as bitter but only as hard-fought. There should be no bitterness or hate where the sole thought is the welfare of the United States of America. No man can occupy the office of President without realizing that he is President of all the people.

It is because I have sought to think in terms of the whole Nation that I am confident that today, just as four years ago, the people want more than promises.

Our vision for the future contains more than promises.

This is our answer to those who, silent about their own plans, ask us to state our objectives.

Of course we will continue to seek to improve working conditions for the workers of America—to reduce hours over-long, to increase wages that spell starvation, to end the labor of children, to wipe out sweatshops. Of course we will continue every effort to end monopoly in business, to support collective bargaining, to stop unfair competition, to abolish dishonorable trade practices. For all these we have only just begun to fight.

Of course we will continue to work for cheaper electricity in the homes and on the farms of America, for better and cheaper transportation, for low interest rates, for sounder home financing, for better banking, for the regulation of security issues, for reciprocal trade among nations, for the wiping out of slums. For all these we have only just begun to fight.

Of course we will continue our efforts in behalf of the farmers of America. With their continued cooperation we will do all in our power to end the piling up of huge surpluses which spelled ruinous prices for their crops. We will persist in successful action for better land use, for reforestation, for the conservation of water all the way from its source to the sea, for drought and flood control, for better marketing facilities for farm commodities, for a definite reduction of farm tenancy, for encouragement of farmer cooperatives, for crop insurance and a stable food supply. For all these we have only just begun to fight.

Of course we will provide useful work for the needy unemployed; we prefer useful work to the pauperism of a dole.

Here and now I want to make myself clear about those who disparage their fellow citizens on the relief rolls. They say that those on relief are not merely jobless—that they are worthless. Their solution for the relief problem is to end relief—to purge the rolls by starvation. To use the language of the stock broker, our needy unemployed would be cared for when, as, and if some fairy godmother should happen on the scene.

You and I will continue to refuse to accept that estimate of our unemployed fellow Americans. Your Government is still on the same side of the street with the Good Samaritan and not with those who pass by on the other side.

Again—what of our objectives?

Of course we will continue our efforts for young men and women so that they may obtain an education and an opportunity to put it to use. Of course we will continue our help for the crippled, for the blind, for the mothers, our insurance for the unemployed, our security for the aged. Of course we will continue to protect the consumer against unnecessary price spreads, against the costs that are added by monopoly and speculation. We will continue our successful efforts to increase his purchasing power and to keep it constant.

For these things, too, and for a multitude of others like them, we have only just begun to fight.

All this—all these objectives—spell peace at home. All our actions, all our ideals, spell also peace with other nations.

Today there is war and rumor of war. We want none of it. But while we guard our shores against threats of war, we will continue to remove the causes of unrest and antagonism at home which might make our people easier victims to those for whom foreign war is profitable. You know well that those who stand to profit by war are not on our side in this campaign.

“Peace on earth, good will toward men”—democracy must cling to that message. For it is my deep conviction that democracy cannot live without that true religion which gives a nation a sense of justice and of moral purpose. Above our political forums, above our market places stand the altars of our faith—altars on which burn the fires of devotion that maintain all that is best in us and all that is best in our Nation.

We have need of that devotion today. It is that which makes it possible for government to persuade those who are mentally prepared to fight each other to go on instead, to work for and to sacrifice for each other. That is why we need to say with the Prophet: “What doth the Lord require of thee—but to do justly, to love mercy and to walk humbly with thy God.” That is why the recovery we seek, the recovery we are winning, is more than economic. In it are included justice and love and humility, not for ourselves as individuals alone, but for our Nation.

That is the road to peace.”

Franklin D. Roosevelt
Madison Square Garden, October 31, 1936

http://jessescrossroadscafe.blogspot.com/2011/07/fdr-speech-1936.html

The Rise of the Wrecking-Ball Right

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Jul 162011

One would have thought the last few years of mine disasters, exploding oil rigs, nuclear meltdowns, malfeasance on Wall Street, wildly-escalating costs of health insurance, rip-roaring CEO pay, and mass layoffs would have offered a singular opportunity to explain why the nation’s collective well-being requires a strong and effective government representing the interests of average people.

The Rise of the Wrecking-Ball Right

Non-Objective Law Is Smothering the Recovery

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Jul 102011

Howard Gold recently noted that the economy’s failure to thrive is a refutation of the work of two dominant 20th-century economists: John Maynard Keynes and Milton Friedman.

Keynes was the great advocate of massive government spending as an economic “stimulus,” which President Obama tried as his first act in office, and which failed to produce the expected “multiplier effect” that was supposed to boost the economy. So this was a failure of the economics of the left. But what about Friedman? While Friedman is usually remembered as one of the great economic defenders of the free markets–which in some ways, he was–he was also one of the chief advocates of monetarism, which promoted the notion that the central planners at the Federal Reserve could manipulate the economy by adjusting the money supply. And as Gold points out, Fed Chairman Ben Bernanke was a self-confessed adherent of Friedman’s theories. So along with the Keynesian stimulus, we got an even bigger monetary stimulus from the Fed, and we got it twice: QE1 and QE2. Yet this also failed to produce the expected multiplier effect.

There is some legitimate mystery as to why. I have inveighed against all forms of bailouts and stimulus, arguing that every dollar pumped into the economy by the government eventually destroys more than a dollar of private economic activity. But the key word is eventually. Money pumped into the economy by the Fed usually goes into “bubbles” of malinvestment, putting the capital to an unproductive use (like building houses that people can’t afford) and creating destructive inflation over the long term. But we would still expect that a tsunami of cheap credit from the Fed would create some short-term credit expansion, even if we have to pay for it later on.

Yet this credit expansion hasn’t happened. The Fed has extended the banks trillions of dollars in easy money, but this hasn’t produced a commensurate expansion of lending. Why not?

The answer is a larger refutation of the theories of monetarist stimulus. The Great Recession demonstrates that the money supply is not the ultimate driver of the economy. The ultimate driver is very simple: has the government created a safe climate for investment?

The Obama administration and the Democratic Congress have done the opposite. They have created a hostile climate for investment, and they have done so through one measure that is directly smothering the economic recovery: the Dodd-Frank financial reform bill. Dodd-Frank has injected a lethal dose of uncertainty into the very heart of the financial sector–and we’re only halfway through the worst of this effect.

The problem is not any specific provision of Dodd-Frank. The problem is the lack of specific provisions. Despite being more than 2,300 pages long, which would be more than enough space to spell out a comprehensive system of regulation in exacting, concrete detail, this is not what Dodd-Frank did. Instead, as the New York Times noted last year when it passed, the bill “is short on the details necessary for enforcement. Enactment has set off a scramble by financial regulators to write the rules needed to put the bill’s broad framework into practice.”

“Richard Murray, chairman of the US Chamber of Commerce’s Center for Capital Markets and Competitiveness, says the burden placed on regulators is unprecedented. ‘It’s a law comprised of goals and objectives much like the preliminary blueprints for the design of a very complex building,’ he said at a July 27 chamber conference on the bill.

“He noted that the law calls for 530 rulemakings, 60 studies, and 90 reports to Congress. ‘The wiring and the piping and the internal decor that will become financial regulation will emerge from that process,’ he said.

A financial consultant quoted in the article described the bill as a “blank slate,” while another provided the best analogy: we’re in “the eye of the storm”: “We have been through a great amount of legislative work…. Now we have to wait for the regulations.”

A year later, we’re still there. Just last week, House Democrats were urging regulators to speed up work on giving actual meaning to the Democrats’ vaporous legislation. This probably won’t help because “much of Dodd-Frank remains tied-up with regulatory agencies that must abide by a standard process laid out by the Administrative Procedures Act, which mandates a string of proposal requirements, commentary periods, and economic impact analyses before new regulations go into effect. Agencies like the Consumer Financial Protection Bureau, FDIC, and Office of the Comptroller of the Currency still need to finalize half of the approximately 387 rules needed to execute Dodd-Frank-related provisions.”

So it will be at least another year at the least before bankers and investors find out what laws they are living under. And it gets worse: the provisions that are yet to be decided are not minor details but go the very heart of the financial industry.

Dodd-Frank formalized the institution of “too big to fail” for companies that are considered large enough to pose a “systemic risk” to the financial sector. In return, these companies are subjected to stringent new requirements intended to prevent them from failing. But it is still not clear which companies will be regarded as “systemically important” and which will not, so hundreds of big financial firms are living under the cloud of restrictive regulation. And to make things worse, Federal Reserve Governor Daniel Tarullo suggested a few weeks ago that systemically important banks should have their capital requirements raised from 7% to as much as 14%.

That’s just a wee, tiny little detail that nobody has quite worked out yet.

Capital requirements are the heart of the investment banking business. They determine, directly and mathematically, how much credit bankers can extend. A 7% requirement means that if your bank has $700 million in its own assets, you can lend up to $10 billion of your depositor’s money. But if the capital requirement is raised to 14%, you can only lend $5 billion. Double the capital requirement and you halve the credit.

And what happens if regulators can’t make up their mind, so no one can tell whether their capital requirements will be doubled or not? Everyone sits on their extra cash, just in case. No wonder the economy is just lying there, flopping and gasping like a fish in the bottom of a bass boat.

Dodd-Frank is a monument to the modern practice of anti-legislation. This has been the pattern of the left’s expansion of the regulatory state for decades, but the Obama administration and Democratic leaders in Congress have raised it to an art form. They pass giant, 2,000-page epics which still manage not to spell out any concrete details. What does the legislation do, instead? Mostly, it lays out an organizational chart of regulators and then empowers these unelected bureaucrats to dictate all of the actual details.

Dodd-Frank is not legislation but the abdication of legislative power. In effect, Congress has given up writing laws and instead vested that power in unelected bureaucrats appointed to executive-branch agencies.

Some details may never be fleshed out. One analysis of Dodd-Frank concludes:

“You will soon find that the regulations themselves are secondary to the new measuring stick called ‘unfair or deceptive acts or practices.’ Under the new environment, being in compliance with regulatory requirements is only a piece of the puzzle. That’s the black and white piece so to speak. You will also have to meet the grey matter test of unfair or deceptive acts or practices…. No matter how you slice it, just about any particular act or practice can fall within the grey area of someone’s interpretation.

Why create a system of such mind-boggling, stultifying uncertainty? I will evoke the “Law of Intended Consequences.” They did it on purpose. The goal of Dodd-Frank was to shift the blame for the financial crisis to the private sector. As the analysis I just quoted notes: “The battle cry for unfair and deceptive acts and practices is born from the mortgage crisis as many consumer and community groups cried foul play after the mortgage bubble burst.” In other words, don’t blame the mortgage bubble on the politicians who agitated for easy credit and for the reckless expansion of Fannie Mae and Freddie Mac–you know, a couple of guys named Dodd and Frank. No, blame the banks, and then come up with a system to punish those wicked bankers and bring them more fully under the government’s yoke.

That the goal is to exact revenge on the bankers is given away by a nasty little “clawback” provision that allows the government to seize the previous two years of a banker’s pay if he is deemed to be “responsible” for an institution’s failure. It’s an excellent way to increase the risks and decrease the rewards of going into the banking business. Yet when a banker sets out to make decisions about how to run his business successfully, he never knows when a regulator will choose to change his capital requirements or decide that his acts or practices are unfair or deceptive. So if the goal was the bring bankers under the control of bureaucrats, mission accomplished.

But this is not a good way to revive the economy or ensure the nation’s financial health. By overturning the rule of law, Dodd-Frank’s non-legislation legislation has created crippling uncertainty in the heart of the financial sector, neutralizing the Fed’s monetary stimulus and smothering the economic recovery.

Non-Objective Law Is Smothering the Recovery – Robert Tracinski, RCM

The Republican attack on financial regulation

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Jun 112011

Republicans aren’t content with blocking anyone and everyone from leading the Consumer Financial Protection Bureau. Next week, they’re planning to attach a series of anti-Dodd-Frank amendments to a noncontroversial economic development bill. One amendment would neuter the CFPB, of course. Gotta keep trying, I guess. Another would repeal the whole law. A third would stop the government identifying too-big-to-fail firms and regulating them more tightly. And that doesn’t even get into the ongoing efforts to defund the agencies that need to implement the various regulations, or the language in the GOP budget repealing the government’s authority to dismantle firms that are about to detonate the financial system.

One possibility here is that I Rip Van Winkled it for a bit and banks got really popular while I was snoring under a tree. So I asked Gallup. The answer? Nope. Wall Street’s got the sort of poll numbers usually reserved for the guy who ran over your dog when you were a kid, or the boss who fired you from your first job. Almost 70 percent of Americans think they’ve got to much power in Washington. That’s four points below the much-beloved lobbyist class and tied with “major corporations.” Allying with the banks is not how you get ahead in American politics.

Perhaps this just shows that so long as your issue isn’t atop the polls, you can take whatever position you want. Perhaps it shows that substantive positions are meaningless — Republicans often pretend that their agenda is anti-bank, even though it echoes the banks’ agenda almost precisely, and even though they’ve not proposed an alternative package of financial regulations to take its place. Perhaps it just shows what the aforementioned Gallup poll shows: Banks are very powerful in Washington.

But those are all political explanations. What about among Republicans themselves? The tea party doesn’t much like the banks. The Republican legislators who had to vote for TARP and listen to Ben Bernanke talk up the chances of armageddon can’t want to go through that again, right? My only hypothesis here is that the Fannie Man/Freddie Mac/CRA explanation, though discredited, has become such conventional wisdom on the Republican side of the aisle that they think, though can’t clearly say, that regulation of Wall Street isn’t really needed. The problem was Washington, and you can’t solve that with more Washington.

Nevertheless, it’s depressing. If anything, Dodd-Frank didn’t go nearly far enough. The Consumer Financial Protection Bureau isn’t strong enough. But it barely took three years for the pendulum in Washington to swing from “it’s time to get a handle on Wall Street” to “leave Wall Street alone!” Even if Dodd-Frank survives this round of attacks, it’s pretty obvious that any approach that relies on regulators is an approach that, sooner than later, Congress will undermine.

Republican Attack On Financial Reform – Klein

Easy Money for the Banksters

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Jun 042011

A newly-released study from the Congressional Research Service bolsters claims that the nation’s largest banks profited off the Federal Reserve’s financial crisis-era programs by borrowing cash for next to nothing, then lending it back to the federal government at substantially higher rates.

The report reinforces long-held beliefs that the banking system in essence engaged in taxpayer-financed arbitrage: They got money for free, then lent it back to Uncle Sam while collecting juicy returns. Left out of the equation are the millions of everyday borrowers, like households and small businesses, who were unable to secure loans needed to tide them over until the crisis ended.

The Fed released records under pressure in December and March that showed the extent of its largesse. The CRS study shows for the first time how some of the most sophisticated financial firms could have taken the Fed’s money and flipped easy profits simply by lending it back to another arm of the government.

The report was requested by Sen. Bernie Sanders (I-Vt.), who likened the crisis-era emergency loans to “direct corporate welfare to big banks,” in a statement. The cash likely was lent back to Uncle Sam in the form of Treasuries and other debt “instead of using the Fed loans to reinvest in the economy,” Sanders added.

In all, more than $3 trillion was lent to financial institutions from the Fed, and terms were generous. Junk-rated securities were pledged as collateral for taxpayer-backed loans. The Fed did not provide conditions for how the money was to be used.

As part of one Fed program, on 33 separate occasions, nine firms were able to borrow between $5.2 billion and $6.2 billion in U.S. government securities for four-week intervals, paying one-time fees that amounted to the minuscule rate of 0.0078 percent.

Guest Post: Congressional Research Service Confirms Big Banks Borrowed Cash For Next To Nothing, Then Lent It Back to the Federal Government at Much Higher Rates

The End of QE2 Is Going to Be a Disaster

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May 152011

The end of the second round of quantitative easing (QE2) is going to be a complete disaster for the paper markets — specifically commodities, stocks, and then finally bonds, in that order, with losses of 20% to 50% by the end of October. The only thing that will arrest the plunge will be QE3, although we should remain alert to the likelihood that it will be named something else in an attempt to obscure what it really is. Perhaps it will be known as the “Muni Asset Trust Term Liquidity Facility” or the “American Prime Purchase Program,” but whatever it is called, it will involve hundreds of billions of thin-air dollars being printed and dumped into the financial system.

A Premature Victory Lap

Ben Bernanke recently stood at a lectern and announced to the assembled audience that the Fed’s recent policies could be credited with elevated stock prices and an improved employment statistic while somehow keeping inflation low.

It was his own version of a “mission accomplished” speech, just like the one G. W. Bush gave. Similarly, it does not mark the end of significant difficulties, but the probable beginning of a very long period of treacherous economic and financial disruption.

Here’s one recent version of how the Fed’s actions are being interpreted, courtesy of Bloomberg:

Bernanke’s QE2 Averts Deflation, Spurs Rally, Expands Credit

Ben S. Bernanke’s $600 billion strike against deflation is paying off, as stock and debt markets rise, bank lending grows and economists forecast faster growth.

The Standard & Poor’s 500 Index has gained 13.5 percent since the Federal Reserve chairman announced on Nov. 3 the plan to buy Treasuries through its so-called quantitative easing policy. Government bond yields show investors expect consumer prices to rise in line with historical averages. The riskiest companies are obtaining credit at the cheapest borrowing costs ever and Fed data show that commercial and industrial loans outstanding are rising for the first time since 2008.

“Looking at market indicators, you have to be convinced it’s been a success,” said Bradley Tank, chief investment officer for fixed-income in Chicago at Neuberger Berman Fixed Income LLC, which oversees about $83 billion. “When you get into periods of aggressive central bank easing, and we’re clearly in the most aggressive period of easing that we’ve ever seen, the markets tend to lead the real economy.”

A rising stock market, low inflation expectations, and lots and lots of cheap credit for even the riskiest companies. What’s not to like?

The main problem is that this is all an illusion.
The End of QE2 Is Going to Be a Disaster – Chris Martenson, Minyanville

Depression? It depends who you talk to…

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May 012011

How can so many Americans believe that we’re in a depression, when the stock market and commodity prices have been booming?
Read the Rest…

“They did it. Yes, there is a ‘they’: the captains of finance, their lobbyists, and allies among leading politicians of both parties, who together destroyed an American regulatory system that had been functioning splendidly. …”

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Apr 092011

The delusion of a classless America in which opportunity is equally distributed is the most effective deception perpetrated by the moneyed elite that controls all the key levers of power in what passes for our democracy. It is a myth blown away by Nobel Prize winner Joseph E. Stiglitz in the current issue of Vanity Fair. In an article titled “Of the 1%, by the 1%, for the 1%” Stiglitz states that the top thin layer of the superwealthy controls 40 percent of all wealth in what is now the most sharply class-divided of all developed nations: “Americans have been watching protests against repressive regimes that concentrate massive wealth in the hands of an elite few. Yet, in our own democracy, 1 percent of the people take nearly a quarter of the nation’s income—an inequality even the wealthy will come to regret.”

That is the harsh reality obscured by the media’s focus on celebrity gossip, sports rivalries and lotteries, situations in which the average person can pretend that he or she is plugged into the winning side. The illusion of personal power substitutes consumer sovereignty—which smartphone to purchase—for real power over the decisions that affect our lives. Even though most Americans accept that the political game is rigged, we have long assumed that the choices we make in the economic sphere as to career and home are matters that respond to our wisdom and will. But the banking tsunami that wiped out so many jobs and so much homeownership has demonstrated that most Americans have no real control over any of that, and while they suffer, the corporate rich reward themselves in direct proportion to the amount of suffering they have caused.

Instead of taxing the superrich on the bonuses dispensed by top corporations such as Exxon, Bank of America, General Electric, Chevron and Boeing, all of which managed to avoid paying any federal corporate taxes last year, the politicians of both parties in Congress are about to accede to the Republican demand that programs that help ordinary folks be cut to pay for the programs that bailed out the banks.

It is a reality further obscured by the academic elite, led by economists who receive enormous payoffs from Wall Street in speaking and consulting fees, and their less privileged university colleagues who are so often dependent upon wealthy sponsors for their research funding. Then there are the media, which are indistinguishable parts of the corporate-owned culture and which with rare exception pretend that we are all in the same lifeboat while they fawn in their coverage of those who bilk us and also dispense fat fees to top pundits. Complementing all that is the dark distraction of the faux populists, led by tea party demagogues, who blame unions and immigrants for the crimes of Wall Street hustlers.

The Delusion Of a Classless United States – Robert Scheer, The Nation

If 2008 was the year of the financial crisis, and 2009 the year of the recession, then 2010 was the year of unemployment. The good news is that things are starting to look up, if modestly. The number of workers making initial unemployment claims—a good indicator of where the unemployment rate is heading—fell to its lowest level since July 2008 this week. Employers have started filling more available positions. And economists expect December’s unemployment rate, to be released next week, to be lower than last month’s.But none of this changes the fact that, by most yardsticks, 2010 was the worst year for jobs since the Great Depression. The year’s average unemployment rate will clock in at about 9.7 percent—higher than last year’s 9.3 percent and tied for the highest annual rate since the government started keeping official counts in 1948. For all of 2010, in any given month, about 15 million Americans—the population of New England—were looking for work. And, really, in any given month, more needed work. Underemployment—that’s the “official unemployed,” plus people in part-time or temporary positions looking for full-time work, plus people discouraged from the labor market and no longer looking—totaled as many as 25 million.

And the recession has not meant just more joblessness. It has also meant longer joblessness. The average length of a spell of unemployment now sits at 30 weeks, after hitting a high of 35 weeks in July. About 6.3 million people, 42 percent of all unemployed Americans, have been out of work for more than six months. And more than 1 million have exhausted their unemployment benefits. They’re called 99ers. (The term, coined this year, refers to the maximum weeks of benefits in the states with the highest unemployment rates.) There are about 1.6 million of them, according to the Department of Labor. And they raise the question: What happens when unemployment insurance ends?

Behold War, not Peace

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Dec 192010

Again war. Again sufferings, necessary to nobody, utterly uncalled for. Again fraud, again the universal stupefaction and brutalization of men.

Men who are separated from each other by thousands of miles … are seeking out one another, in order to kill, torture, and mutilate each other in the cruelest way possible. What can this be? Is it a dream or a reality? Something is taking place which should not, cannot be; one longs to believe that it is a dream and to wake from it.

But no, it is not a dream, it is a dreadful reality!

…How can so-called enlightened men preach war, support it, participate in it, and worst of all, without suffering the dangers of war themselves, incite others to it, sending their unfortunate defrauded brothers to fight? These so-called enlightened men cannot possibly ignore … all that has and is being written about the cruelty, futility and senselessness of war. They are regarded as enlightened men precisely because they know all this. The majority of them have themselves written and spoken about it. … No enlightened man can help knowing that the universal competition in the armament of states must inevitably lead them to endless wars or to a general bankruptcy, or else to both the one and the other. …

Everyone knows and cannot help but knowing that, above all, war, calling forth the lowest animal passions, deprave and brutalize men. … All so-called enlightened men know this. Then suddenly war begins and all this is instantly forgotten, and the same men who but yesterday were proving the cruelty, futility, the senselessness of wars, now think, speak and write only about killing as many men as possible, about ruining and destroying the greatest possible amounts of human labor, and about exciting as much as possible the passion of hatred in those peaceful, harmless, industrious men who by their labour feed, clothe, maintain these same pseudo-enlightened men who compel them to commit those dreadful deeds contrary to their conscience, welfare or faith.

Something is taking place incomprehensible and impossible in its cruelty, falsehood and stupidity …. Stupefied by prayers, sermons, exhortations, by processions, pictures and newspapers, the cannon-fodder — hundreds of thousands of men, uniformly dressed, carrying divers deadly weapons, leaving their parents, wives, children, with hearts of agony but with artificial bravado — go where they, risking their own lives, will commit the most dreadful act of killing men whom they do not know and who have done them no harm. And they are followed by doctors and nurses who somehow imagine that at home they cannot serve simple peaceful suffering people but can only serve those who are engaged in slaughtering each other. Those who remain at home are gladdened by news of the murder of men, and when they learn that many [enemies] have been killed, they thank someone whom they call God.

All this is not only regarded as the manifestation of elevated feeling, but those who refrain from such manifestations, if they endeavour to disabuse men, are deemed traitors and betrayers, and are in danger of being abused and beaten by a brutalized crowd, which in defense of its insanity and cruelty can possess no other weapon than brute force.

Lev Nikolayevich Tolstoy, 1904 (trans. by Evgeny Lampert, in Essays From Tula, Sheppard Press 1948)

The financial sector is trying to get politicians to siphon off money from labor and industry to pay bankers. This will impede capital formation and living standards.

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Dec 192010

10.

1. A recent article of yours, “Schemes of the Rich and Greedy,” cites the bailouts in Europe among such schemes. What are the main faults with bailouts, and for whom are they designed?

The financial sector is trying to get politicians to siphon off money from labor and industry to pay bankers. This will impede capital formation and living standards.

The banks misrepresented the real value of balance sheet and hence what they really were owed under actual market conditions. Now that they have taken the money and run, the «real» economy is being told to pay the off their bad loans. The arrogance of this demand prompted Angela Merkel to ask why governments – meaning «taxpayers» – should pay for bad bank loans and corrupt financial dealing.

Nice try if bankers can get away with it! But I’m glad to see Germany opposing the EU proposal to double its bailout fund.

Financial Interests Dictate Sovereign Policy Michael Hudson

A lot of people forget that having debt you can’t pay back really sucks. Debt is not just a credit instrument, it is an instrument of political and economic control.

It’s actually baked into our culture. The phrase ‘the man’, as in ‘fight the man’, referred originally to creditors. ‘The man’ in the 19th century stood for ‘furnishing man’, the merchant that sold 19th century sharecroppers and Southern farmers their supplies for the year, usually on credit. Farmers, often illiterate and certainly unable to understand the arrangements into which they were entering, were charged interest rates of 80-100 percent a year, with a lien places on their crops. When approaching a furnishing agent, who could grant them credit for seeds, equipment, even food itself, a farmer would meekly look down nervously as his debts were marked down in a notebook. At the end of a year, due to deflation and usury, farmers usually owed more than they started the year owing. Their land was often forfeit, and eventually most of them became tenant farmers.

They were in hock to the man, and eventually became slaves to him. This structure, of sharecropping and usury, held together by political violence, continued into the 1960s in some areas of the South. As late as the 1960s, Kennedy would see rural poverty in Arkansas and pronounce it ’shocking’. These were the fruits of usury, a society built on unsustainable debt peonage.

Power farming displaces tenants from the land in the western dry cotton area. Childress County, Texas, 1938.

Stoller: A Debtcropper Society

By Matt Stoller, a blogger-turned Congressional staffer. He was a policy advisor to Rep. Alan Grayson on financial policy issues. Cross posted from New Deal 2.0.

Today, we are in the midst of creating a second sharecropper society. I first heard the term “slaves to the bank” from a constituent fighting a fraudulent foreclosure. The details aren’t so important — this couple had been illegally placed in a predatory loan — but at one point, the wife explained that she and her husband were so scared they would have “given their first born to the bank to keep their home”. That was fear speaking, total unadulterated panic. And as we watch debt-holders use the ornaments of fear, such a loan sharking company that set up fake courts to convince debtors they were losing cases, we should recognize that what the creditor class wants is what they’ve always wanted: total dominance of our culture.

Today, the debts do not involve liens against crops. People in modern America carry student loans, credit card debt, and mortgages. All of these are hard to pay back, often bringing with them impenetrable contracts and illegal fees. Credit card debt is difficult to discharge in bankruptcy and a default on a home loan can leave you homeless. A student loan debt is literally a claim against a life — you cannot discharge it in bankruptcy, and if you die, your parents are obligated to pay it. If the banks have their way, mortgages and deficiency judgments will follow you around forever, as they do in Spain.

Young people and what only cynics might call ‘homeowners’ have no choice but to jump on the treadmill of debt, as debtcroppers. The goal is not to have them pay off their debts, but to owe forever. Whatever a debtcropper owes, a wealthy creditor owns. And as a bonus, the heavier the debt burden of American citizenry, the less able we are able to organize and claim our democratic rights as citizens. Debtcroppers don’t start companies and innovate, they don’t take chances, and they don’t claim their political rights. Think about this when you hear the calls from ex-Morgan Stanley banker and current World Bank President Robert Zoellick and his nebulous mutterings pining for the gold standard. Or when you hear Warren Buffett partner Charlie Munger talk about how the bailouts of the wealthy were patriotic, but we mustn’t bail out homeowners for fear of ‘moral hazard’. Or when you hear Pete Peterson Foundation President and former Comptroller General David Walker yearn nostalgically for debtor’s prisons.

Unclogging our constipated economy is not a complex problem — we must simply wipe out the bad debt that cannot be paid back. The complexity of the problem lies in the politics. Debtcroppers have no power, except to stop paying their debts. The constituents I worked with on a fraudulent foreclosure eventually did just that. She and her husband, unshackled by panic, began rebuilding their lives, throwing away their indentured servitude to the bank that abused them. They found their dignity, and used the court system to claim their rights as citizens. They fought the man, successfully, and wiped out their debt. And that is a very scary threat to the creditor class, perhaps the only thing they are really scared of.

The next economy and America’s future

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Oct 102010

Robert Reich: Aftershock Jesse

Let Them Eat Credit

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Aug 292010

By most counts, the U.S. economy started growing in the middle of last year. For many Americans, though, it does not feel as if the Great Recession has ended—unemployment and underemployment are still alarmingly high, and job growth is weak. Many causes have been suggested for both the economic collapse and mediocre recovery, but one that is hardly ever mentioned is income inequality. This is a mistake. Growing income inequality in the United States and the policy responses it has spawned have done tremendous damage to our economy. And because we continue to ignore this underlying problem, the risks of our policies leading to another calamity will not go away, no matter what we do to reform the financial sector.

Since 1968, income inequality has been steadily increasing in the United States. I am not referring to the Croesus-like income of a John Paulsen, the hedge fund manager who in 2008 netted over $3 billion, about 75,000 times the average household income. I refer to a more worrying everyday phenomenon that confronts most Americans, the disparity in income growth rates between a manager at the local supermarket and the typical factory worker or office assistant. Since the 1970s, the wages of the former, typically workers at the 90th percentile of the wage distribution in the United States, have grown much faster than the wages of the latter, the typical median worker. Or consider the table below, which shows that the wages of occupation groups that are paid more than the national average in 2002 have grown much faster since then than the wages of occupation groups below the average:

The Inequality Gap Is Ruining the American Economy—and Bernanke Is Just Making it Worse Raghuram G. Rajan

This forecaster is saying something that I thought was just common sense and I mentioned a year ago or more. That is to say, without a vibrant middle class to effect the necessary 70 % consumption that represented the bulk of activity supporting the “old economy”, how is the revival supposed to occur? What we need is a very focused new industrial policy that puts the USA back in the saddle and in the front of the parade. Please forgive my mixed metaphors!

Brian J. Schuettler

Collapse of middle class means there’s no fuel for recovery, Gerald Celente argues

The US economic recovery in recent quarters is little more than a “cover-up” and the world is headed for a “Greatest Depression,” complete with social unrest and class warfare, says a renowned economic forecaster.

Gerald Celente, head of the Trends Research Institute, told Yahoo!News’ Tech Ticker that there’s no risk of a “double-dip recession” because the first “dip” never ended.

“We’re saying there’s no double dip, it never ended,” Celente said. “We’re looking at the Greatest Depression. There’s no way out of this without [rebuilding] productive capacity. You can’t print [money to get] out of it.”

Celente, who has been credited with predicting the 1987 stock market crash, the collapse of the Soviet Union and the subprime mortgage crisis of recent years, said the US and other developed countries can expect to see the sort of social unrest the world witnessed in Greece this year once government attempts to shore up the economy fail and lawmakers turn to “austerity measures” to plug gaping budget holes.

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Aug 152010

Taleb Says Government Bonds to Collapse, Avoid Stocks – Bloomberg

Nassim Nicholas Taleb, who warned that unforeseen events can roil markets in “The Black Swan,” said he is “betting on the collapse of government bonds” and that investors should avoid stocks.

“I’m very pessimistic,” he said at the Discovery Invest Leadership Summit in Johannesburg today. “By staying in cash or hedging against inflation, you won’t regret it in two years.”

Treasuries have rallied amid speculation the global economic recovery is faltering, driving yields on two-year notes to a record low of 0.4892 percent today. The Federal Reserve yesterday reversed plans to exit from monetary stimulus and decided to keep its bond holdings level to support an economic recovery it described as weaker than anticipated. The Standard & Poor’s 500 Index retreated 16 percent between April 23 and July 2, the biggest slump during the bull market.

The financial system is riskier than it was before the 2008 crisis that led the U.S. economy to the worst contraction since the Great Depression, Taleb said.

The Committee to Defraud the World

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Aug 012010

To say now that ‘No one knew’ or ‘I was mistaken’ or ‘I was just doing as I was told’ is another in a series of lies and deceptions that have supported one of the greatest frauds in the history of the world.

But this is not history. This episode of fraud is still playing itself out now. And to fail to understand the depth and breadth of this madness is to place oneself in peril, and in the power of those who are twisting the Western economic and political system even now to satisfy their lust for wealth and power. You are only successful if you can keep what you kill.

Glass-Steagall fell after a decade long campaign involving hundreds of millions in lobbyist money spread lavishly around the Congress, led by Sanford Weil of Citibank, supported by key banking and political figures in the Congress and at the Fed. It involved Senator Phil Gramm, who helped to put a stake in the heart of the financial regulatory process under the Reagan free markets banner, and who recently said the problem is that the middle class were a bunch of whiners. As did his wife Wendy, who as the chairperson of the CFTC had exempted Enron from regulatory oversight, and then left to take a position there on its board of directors.

Like the Mortgage Backed Securities scandal it involved surprisingly few principal players, like Alan Greenspan and Robert Rubin, who used their power and influence to silence and ostracize critics, and promote a climate of reckless disregard for the public trust under the meme of ‘efficient markets’ and deregulation. This might have been an innocent policy error if it did not involve premeditated theft on a massive scale, followed by cover ups, denials, and a control fraud that exists even today.

But it also involved literally thousands of collaborators and enablers, from mainstream media people, economists, analysts, and other thought leaders to politicians and regulators who saw that it was to their advantage to at least passively support this scheme which they knew very well was a fairy tale, a fraud, class warfare by a new name, but were able to hide their own guilty consciences behind self-serving rationalization and the shield of plausible deniability.

History, and hopefully the justice system, will sort this all out. It is difficult, even now, to get one’s mind around the enormity of it. This is its most powerful weapon. Who could be such monsters, so amoral, so destructively sociopathic? Future generations will regard it as an episode of madness, driven by a few people in a tight circle of self-reinforcing thought, people with remarkably similar cultural and educational backgrounds, driven by a consuming lust for power, that were able to dupe and delude an entire nation made vulnerable by propaganda, a co-opted press, and apathy.

In the meanwhile all the great mass of people can do is to watch, and wait, and seek to protect themselves from these ravening wolves grown increasingly desperate, as their arrogance comes to a tragic fall. They can vote out incumbents, but the parties choose the candidates, and too often they resemble competing crime families of special interests more than pillars of a representative government, saying one thing to get elected and doing another thing once in office.

This is the approach of trouble when hubris is at its height, and the few feel they have everything to gain and nothing to lose, if only they can gain more power, and necessarily become more ruthless. They are trapped in a cycle of fear and greed. The fear provokes the lies and the cover ups, but the greed promotes the extension of the fraud and the theft, requiring even more lies and cover ups. The operative word is ‘over reach,’ in a classic late stage Ponzi scheme. This will undoubtedly add to the confusion as the truth is assaulted by the big lie.

The last vestiges of polite society are often shed as the downfall reaches it final conclusion, at the end, when all is revealed, at last. And so there will be great danger.

Jesse’ s Cafe http://jessescrossroadscafe.blogspot.com/2010/07/committee-to-defraud-world.html

Howdy, Neighbor!

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Apr 102010

When asked what advice he would give to residents of Ashtabula County Ohio because of cutbacks in official law enforcement budgets, Judge Alfred Mackey said they should:

“arm themselves. Be very careful, be vigilant, get in touch with your neighbors, because we’re going to have to look after each other.”

http://jessescrossroadscafe.blogspot.com/2010/04/ohio-judge-tells-residents-to-arm.html

The Furrows of Algeria: The First Great Novel About Islamism

Coup d'etat in America, Integrity and Responsibility, IT'S ALL ABOUT POWER AND MONEY, It's the Tribes, The Arrogance of Power, The Importance of Strategic Planning, The Inherent Disorder of Empires, The Intrusion of UNLAWFUL Authority, The Judeo-Christian Political Coalition, Time For A New Third Party, We Are All Guilty No Responses »

Feb 272010

From the terrible Algerian slaughter, and its terrible silence, comes this small tale, told by an officer of the special forces who broke with “Le Pouvoir” of his own country and sought asylum in France. It is the autumn of 1994, deep into the season of killing. An old and simple Algerian woman, accompanied by two of her children, comes to the army barracks, to the very building where the torturers did their grim work, in search of her husband and her son. The two men were there; they had already endured three days of torture. The woman was quite certain where the men were being held. It was the same place, she told the astonished young Algerian officer, where the French held and tortured their prisoners during the “war of liberation” decades earlier. Her husband had been an old mujahid, a soldier in the holy war, and had known imprisonment under the French–and now again, during this most recent time of horror and sorrow. The old woman was never to see her husband and her son again. They perished in the ordeal of the new Algeria.

Continue reading “The Furrows of Algeria”

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The Furrows of Algeria: The First Great Novel About Islamism

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