Banks Break Law, Pay Small Fines, Go Back to Breaking Law
By: David Dayen Saturday July 17, 2010 7:11 am
Firedoglake.com
I’m a bit surprised that Ted Kaufman, whose eloquent speech on FinReg said exactly what needed to be said about that legislation, was so pleased with the SEC settlement with Goldman Sachs for $550 million dollars. He says that the case proves that the SEC is back on the beat, that Goldman only made $15 million on the deal so the return was not worth the risk for them and that this could signal the beginning and not the end of civil and criminal prosecutions for financial fraud, a new era of accountability and justice.
"As I said on the Senate floor on March 15, it is high time that we return the rule of law to Wall Street, which has been seriously eroded by the deregulatory mindset that captured our regulatory agencies over the past 30 years. We became enamored of the view that self-regulation was adequate, that rational self-interest would motivate counterparties to undertake stronger and better forms of due diligence than any regulator could perform, and that market fundamentalism would lead to the best outcomes for the most people.
Transparency and vigorous oversight by outside accountants were supposed to keep our financial system credible and sound. Instead, an era with no effective regulation or law enforcement led to the biggest financial crisis since 1929 and an economic disaster for the American people. And we know that fraud and lawlessness were at the heart of it.
Congress must continue to concentrate law enforcement and regulatory resources on restoring the rule of law to Wall Street. I am proud that the S.E.C. has begun this task. We must treat financial crimes with the same gravity as other crimes, because the price of inaction and a failure to deter future misconduct is simply a price America can never again afford to pay." (Senator Ted Kaufman on US Senate floor)
Wall Street doesn’t really see it that way, as evidenced by the persistent rise in Goldman’s stock price since the settlement. And the continued use of exotic financial instruments and high-frequency trading and all of the other casino games that have virtually nothing to do with the purpose of finance.
Consider just one mind-blowing example: Wachovia’s financing of Mexican drug money, an extremely lucrative enterprise that netted them billions over the years. The story, worth reading in full, details how drug money gets laundered through US banks, allowing the multi-billion dollar drug cartels to operate freely. Nobody knows how much Wachovia, since bought by Wells Fargo, made on the handling of $378.4 billion dollars in Mexican currency swaps, but the fine the parent company wound up paying under the Bank Secrecy Act was a mere $160 million. And there’s more:
"The 1970 Bank Secrecy Act requires banks to report all cash transactions above $10,000 to regulators and to tell the government about other suspected money-laundering activity. Big banks employ hundreds of investigators and spend millions of dollars on software programs to scour accounts.
No big U.S. bank — Wells Fargo included — has ever been indicted for violating the Bank Secrecy Act or any other federal law. Instead, the Justice Department settles criminal charges by using deferred-prosecution agreements, in which a bank pays a fine and promises not to break the law again."
Matt Taibbi made this point recently (I forget which radio show it was). If petty thieves steal $10,000 and get caught, they go to jail. If banks steal or fraudulently acquire billions upon billions of dollars, they pay a fine and promise to never do it again, and that’s it. And this was the exact nature of the settlement in the Goldman case.
Rule of law means that people responsible for crimes lose their liberty. That’s what it means for most people, anyway. Not so on Wall Street. Kaufman name-checks Galbraith, but Galbraith would like to see people who break the law go to prison. That would be an effective deterrent, not a slap on the wrist.
UPDATE: It should also be noted that the SEC is “back on the beat” only by the skin of its teeth. The two Republican commissioners on the SEC didn’t want to bring the Goldman case at all, and then split on the settlement as well, trying to get the fine lowered.
Showing posts with label Glass-Steagall Act. Show all posts
Showing posts with label Glass-Steagall Act. Show all posts
Sunday, July 18, 2010
Friday, July 16, 2010
Financial Regulation Bill Passes Senate: A Boon to Wall Street
The Wall Street Reform Bill: How Much Did We Lose Getting to 60?
Sen. Ted Kaufman
Huffington Post
Posted: July 15, 2010 01:22 PM
After months of careful consideration, landmark financial reform legislation moves towards final passage. While this bill is a vast improvement over the existing regulatory structure, I believe it should go further with respect to erecting statutory walls that address the fundamental problem of "too big to fail." I will support the conference report, though I do so with significant reservations about a missed opportunity to enact needed structural reforms that would better prevent another financial crisis.
Ultimately, given the make-up of the Senate and the requirement of 60 votes, this was the best bill that could pass. For those who wish the bill was stronger, let there be no confusion about where the blame lies. It is because almost every Senator on the other side of the aisle did everything they could to stall, delay and oppose Wall Street reform.
To be sure, the bill that has come out of conference includes some extremely important reforms. It establishes an independent Consumer Financial Protection Bureau (CFPB) with strong and autonomous rulemaking authority and the ability to enforce those rules for large banks and nonbanking entities like payday lenders and mortgage finance companies. In addition, it requires electronic trading and centralized clearing of standardized over-the-counter derivatives contracts as well as more robust collateral and margin requirements. The bill's inclusion of the Kanjorski provision will give regulators the explicit authority to break up megabanks that pose a "grave threat" to financial stability. And I was pleased that the bill includes a provision I helped develop to give regulators enhanced tools and powers to pursue financial fraud.
Through the Collins provision, the bill also establishes minimum leverage and risk-based capital requirements for bank holding companies and systemically risky non-bank institutions that are at least as stringent as those that apply to insured depository institutions. In light of the failures of past international capital accords, this requirement will set a much-needed floor on how low capital can drop in the upcoming Basel III negotiations on capital requirements. It will also ensure that the capital base of megabanks is not adulterated with debt that masquerades as equity capital.
That being said, unfortunately, I believe the bill suffers from two major problems. First, the bill delegates too much authority to the regulators. I've been around the Senate for 37 years. As I said on the Senate floor on February 4th of this year and in several speeches since then, I know that many times laws are not written with hard and clear lines. Laws are a product of legislative compromise, which often means they are vague and ambiguous. We often justify our vagueness by saying the regulators to whom we grant statutory authority are in a better position than we are to write the rules - and then to apply those regulatory rules on a case-by-case basis. But, as I have said, this was not one of those times. This was a time for Congress to draw hard lines that get directly at the structural problems that afflict Wall Street and our largest banks.
Despite repeated urging from me and others to pass laws that would help regulators to succeed, Congress largely has decided instead to punt decisions to the regulators, saddling them with a mountain of rulemakings and studies. The law firm Davis Polk has estimated that the SEC alone must undertake close to 100 rulemakings and more than a dozen studies.
Indeed, Congress has so choked the agencies with rulemakings and studies, the totality of the burden threatens to undermine the very ability of the agencies to accomplish their ongoing everyday mission. I for one urge the agencies to triage carefully these required rulemakings and studies, establish a hierarchy of priorities, and ensure that the agencies do not shift all resources to new rules meant to address old problems to such a degree that they fail to stay on top of current and growing problems. I will have more to say on this subject in a future speech.
Second, the legislation does not go far enough in addressing the fundamental problem of "too big to fail." Instead of erecting enduring statutory walls as we did in the 1930s, the bill invests the same regulators who failed to prevent the financial crisis with additional discretion and relies upon a resolution regime to successfully unwind complex and interconnected mega-banks engaged across the globe. I am also disappointed that key reform provisions like the Volcker Rule and the Lincoln swaps dealers spin-off provision were scaled back in conference.
The bill mainly places its faith and trust in regulatory discretion and on international agreements on bank capital requirements and supervision. After decades of deregulation and industry self-regulation, it is incumbent upon the regulators now to reassert themselves and establish rulemaking and supervisory frameworks that not only correct their glaring mistakes of the past, but also anticipate future problems, particularly risks to financial stability. Unfortunately, the early indications we are seeing out of the G-20 and so-called Basel III discussions are not encouraging, as critical reforms are already being watered down and pushed back in part because some foreign regulators carelessly refuse to heed the risks posed by their megabanks.
The legislation also puts in place a resolution authority to deal with these institutions when they inevitably get into trouble. While such authority is absolutely necessary, it is not sufficient. That is because no matter how well Congress crafts a resolution mechanism, there can never be an orderly wind-down of a $2-trillion financial institution that has hundreds of billions of dollars of off-balance-sheet assets, relies heavily on wholesale funding, and has more than a toehold in over 100 countries. Of course, since financial crises are macro events that will undoubtedly affect multiple megabanks simultaneously, resolution of these institutions will be enormously expensive. And until there is international agreement on resolution authority, it is probably unworkable.
Given the history of financial regulatory failures and the enormous burden of rulemakings and studies with which the regulators are being tasked, Congress has a critical oversight responsibility. Congress first must ensure that the regulators have enough staff and resources at their disposal to follow through on their serious obligations. Just as important, Congress must monitor the regulatory phase of this bill's implementation closely to ensure that the regulators don't return to "business as usual" when the experience of the most recent financial crisis fades into memory.
Volcker Rule
For example, in addition to granting great discretion to regulators on how they interpret the ban on proprietary trading at banks, the scaled-back Volcker Rule contains a large loophole that allows megabanks to continue to own, control and manage hedge funds and private equity funds under certain conditions. Most notably, it includes a de minimis exception that permits banks to invest up to three percent of Tier 1 capital in hedge funds and private equity funds so long as their investments don't constitute more than three percent ownership in the individual funds.
The impact of a supposedly small three percent de minimis exception for investments in hedge funds and private equity firms has the potential to be massive. For example, a $2 trillion bank that has $100 billion in Tier 1 capital would be able to invest $3 billion into hedge funds. Since that $3 billion could only constitute three percent ownership, it would need to be invested alongside at least $97 billion of funds from outside investors. The bank would therefore be able to manage $100 billion in hedge fund assets, a massive amount equal to the current size of the largest hedge funds in the world combined. What's more, that $100 billion in assets can be leveraged several times over through the use of borrowed funds and derivatives into overall exposures that could exceed a trillion dollars. And given the ambiguity of the legislative language, unless clarified by a rulemaking, some commentators have indicated that megabanks could potentially provide prime brokerage loans to hedge funds they partially own and run.
Fortunately, the final bill does place costs on banks' de minimis investments in hedge funds and private equity funds. Specifically, the legislation requires a 100% capital charge on these proprietary investments, making them expensive for banks to hold. While this may be a helpful deterrent, I am concerned that it will not be enough of one, particularly when considering how lucrative and risky an activity it is for banks to run hedge funds and private equity funds.
The overarching problem is that banks will continue to be able to offer and run - never mind, partially own - risky investment funds. Even though the scaled-back Volcker Rule includes a "no bailout" provision, I have concerns about the credibility of that edict. Under any circumstance, the failure of a massive hedge fund run by a megabank would pose serious reputational and financial risks to that institution.
Just look at what happened when the structured investment vehicles (or SIVs) of Citigroup and other megabanks began to falter. Because of the reputational consequences of liquidating these funds and allowing them to default on their funding obligations, they were bailed out by the megabanks that spawned them even though the SIVs themselves were generally separate, off-balance-sheet entities with no official backing from the banks.
Finally, the strength of the core part of the Volcker Rule - the ban on proprietary trading - will depend greatly on the interpretation of the regulators. They will ultimately be the arbiter of whether broad statutory exceptions for "market making" or "risk-mitigating hedging" or "purchases" or "sales" of securities on "behalf of customers" are allowed to swallow the putative prohibition. I therefore urge the regulators to construe narrowly those activities that constitute exceptions to proprietary trading to ensure that the Volcker Rule has some teeth in it.
Swaps Dealer Spin-Off
Senator Lincoln's original swap dealer spin-off provision would have prohibited banks with swap dealers from receiving emergency assistance from the Federal Reserve or FDIC. By essentially forcing megabanks to spin off their swap dealers into an affiliate or separate company, this section would have helped restore the wall between the government-guaranteed part of the financial system and those financial entities that remain free to take on greater risk. It would also have forced derivatives dealers to be adequately capitalized.
While the final bill includes the Lincoln provision, it limits its application to derivatives that reference assets that are permissible for banks to hold and invest in under the National Bank Act. Since that exception covers interest rate, foreign exchange and other swaps, it ultimately exempts close to 90% of the over-the-counter derivatives market. Regulators must therefore reduce counterparty exposures by requiring the vast majority of derivatives contracts to be cleared and calibrate carefully the amount of capital that bank derivative dealers must maintain. Only then can we be sure we never again face a meltdown caused by excessively leveraged derivatives exposure that no regulator helps to keep in check.
Conclusion
The financial reform bill places enormous responsibilities and discretion into the hands of the regulators. Its ultimate success or failure will depend on the actions and follow-through of these regulators for many years to come. It is estimated that various federal agencies will be charged with writing over 200 rulemakings and dozens of studies. Many of the same regulators who failed in the run-up to the last crisis will once again be given the solemn task of safeguarding our financial stability. Like many others, I am concerned whether they have the capacity and wherewithal to succeed in this endeavor.
I repeat again, Congress has an important role to play in overseeing the enormous regulatory process that will ensue following the bill's enactment. The American people, for that matter, must stay focused on these issues, if just to help ensure that Congress indeed will fulfill its oversight duty and its duty to intervene if the regulators fail. Likewise, although I will be leaving the Senate in November, I will be watching closely to see how the regulators follow through on the enormous responsibilities they are being handed.
Let us not forget why reform is so necessary and important. After years of Wall Street malfeasance and the systematic dismantling of our regulatory structure, our financial system went into cardiac arrest and our economy nearly fell into the abyss. Wall Street, which had grown out of control on leverage and financial gimmickry, blew up. More than 8 million jobs were wiped out; millions more have lost their homes. We spent trillions of dollars in monetary easing and emergency measures to avert the wholesale failure of many of our megabanks. Not surprisingly, we continue to feel the aftershocks of the worst financial crisis since the Great Depression. The banks are not lending. Fed Chairman Bernanke just days ago urged them to do more for small businesses. Companies and consumers alike remain shaken in their confidence. And despite dramatic stimulus measures, the economic recovery has been slow and tentative.
Many of the opponents of Wall Street reform would like to make the dubious claim that the recovery is being held back by uncertainty about future regulations and taxes. In reality, it is being held back by the financial shock and the fact that we are still in a period of financial instability and undergoing an excruciating process of deleveraging. Even now it is unclear whether a European banking crisis based on their holdings of sovereign debt will continue to impede that recovery.
It is therefore imperative that we build a financial system on a firmer foundation. The American economy cannot succeed unless we restore and maintain financial stability. We simply cannot afford another financial crisis or continued financial instability if the American economy is to succeed in the coming decades. Getting financial regulation right and maintaining it for years to come should be one of this nation's highest priorities because the price of failure is far too high.
____________
Dylan Ratigan Says "Watered-Down" Financial Reform Bill Won't Prevent Another Finacial Collapse--- Please watch video for Details
Dylan Ratigan:
--40% of financial contributions to Congress come from Financial Industry.
--After Senate Bill passed committee, big bank stocks rebounded sharply.
--According to Bloomberg poll, 4 of 5 Americans don't trust Wall Street/Fin-Reg.
--Over $300 million spent by Financial Industry to get the bill they wanted.
--Fin-Reg bill did not reign-in excessive leveraging by investment banks.
--Bill does not prevent future tax-payer bailouts of too big to fail banks.
____________
How Financial Brokers Became Bookies: The Insidious Transformation of Markets Into Casinos
By Ellen Brown
Global Research,
July 13, 2010
"You all are the house, you're the bookie. [Your clients] are booking their bets with you. I don't know why we need to dress it up. It's a bet." Senator Claire McCaskill, Senate Subcommittee on Investigations, investigating Goldman Sachs (Washington Post, April 27, 2010)
Ever since December 2008, the Federal Reserve has held short-term interest rates near zero. This was not only to try to stimulate the housing and credit markets but also to allow the federal government to increase its debt levels without increasing the interest tab picked up by the taxpayers. The total public U.S. debt increased by nearly 50% from 2006 to the end of 2009 (from about $8.5 trillion to $12.3 trillion), but the interest bill on the debt actually dropped (from $406 billion to $383 billion), because of this reduction in interest rates.
One of the dire unintended consequences of that maneuver, however, was that municipal governments across the country have been saddled with very costly bad derivatives bets. They were persuaded by their Wall Street advisers to buy credit default swaps to protect their loans against interest rates shooting up. Instead, rates proceeded to drop through the floor, a wholly unforeseeable and unnatural market condition caused by rate manipulations by the Fed. Instead of the banks bearing the losses in return for premiums paid by municipal governments, the governments have had to pay massive sums to the banks – to the point of bankrupting at least one city (Montgomery, Alabama).
Another unintended consequence of the plunge in interest rates has been that “savers” have been forced to become “speculators” or gamblers. When interest rates on safe corporate bonds were around 8%, a couple could aim for saving half a million dollars in their working careers and count on reaping $40,000 yearly in investment income, a sum that, along with social security, could make for a comfortable retirement. But very low interest rates on bonds have forced these once-prudent savers into the riskier and less predictable stock market, and the collapse of the stock market has forced them into even more speculative ventures in the form of derivatives, a glorified form of gambling. Pension funds, which have binding pension contracts entered into when interest was at much higher levels, are so strapped for returns that they actually seek out the riskier investments, which have higher returns. That means they can and do regularly get fleeced when the risk occurs.
Derivatives are basically just bets. Like at a racetrack, you don’t need to own the thing you’re betting on in order to play. Derivative casinos have opened up on virtually anything that can go up or down or have a variable future outcome. You can bet on the price of tea in China, the success or failure of a movie, whether a country will default on its debt, or whether a particular piece of legislation will pass. The global market in derivative trades is now well over a quadrillion dollars – that’s a thousand trillion – and it is eating up resources that were at one time invested in productive enterprises. Why risk lending money to a corporation or buying its stock, when you can reap a better return betting on whether the stock will rise or fall?
The shift from investing to gambling means that not only are investors making very little of their money available to companies to produce goods and services, but the parties on one side of every speculative trade now have an interest in seeing the object of the bet fail, whether a company, a movie, a politician, or a country. Worse, high-speed program traders can actually manipulate the market so that the thing bet on is more likely to fail.
High frequency traders -- a field led by Goldman Sachs -- use computer algorithms to automatically bet huge sums of money on minor shifts in price. These bets send signals to the market which can themselves cause the price of assets to shoot up or tumble down. By placing high-volume trades, the largest speculative traders can thus intentionally “fix” prices in any direction they want.
“Prediction” Markets
Casinos for betting on what something will do in the future have been promoted as reliable “prediction” markets, and they can cover a broad range of issues. MIT’s Technology Review launched a futures market for technological innovations, in order to bet on upcoming developments. The NewsFutures and TradeSports Exchanges enable people to wager on matters such as whether Tiger Woods will take another lover, or whether Bin Laden will be found in Afghanistan.
A 2008 conference of sports leaders in Auckland, New Zealand, featured Mark Davies, head of a sport betting exchange called Betfair. Davies observed that these betting exchanges, while clearly gambling forums, are little different from the trading done by financial firms such as JPMorgan. He said:
“I used to trade bonds at JPMorgan, and I can tell you that what our customers do is exactly the same as what I used to do in my previous life, with the single exception that where I had to pore over balance sheets and income statements, they pore over form and team-sheets.”
The online news outlet Slate monitors various prediction markets to provide readers with up-to-date information on the potential outcomes of political races. Two of the markets covered are the Iowa Electronic Markets and Intrade. Slate claims that these political casinos are consistently better at forecasting winners than pre-election polls. Participants bet real money 24 hours a day on the outcomes of a range of issues, including political races. Newsfutures and Casualobserver are similar, smaller exchanges.
Besides shifting the emphasis to gambling (“Why Vote When You Can Bet?” says Slate’s “Guide to All Political Markets”), prediction markets can be manipulated so that they actually affect outcomes. This became evident, for example, in 2008, when the John McCain campaign used the InTrade market to shift perception of his chances of winning. A supporter was able to single-handedly manipulate the price of McCain’s contract, causing it to move up in the market and prompting some mainstream media to report it as evidence that McCain was gaining in popularity.
Betting on Terrorism
The destructive potential of betting on political outcomes became particularly apparent in a notorious prediction market sponsored by the Pentagon, called the “policy analysis market” (PAM) or “terror futures market.” PAM was an attempt to use the predictive power of markets to forecast political events tied to the Middle East, including terrorist attacks. Trading in American Airlines shares in the days before the September 11th attack on the World Trade Center was one of the bases of the Pentagon’s justification for the program. According to the New York Times, the PAM would have allowed trading of futures on political developments including terrorist attacks, coups d’état, and assassinations.
The exchange was shut down a day after it launched, after commentators pointed out that the system made it ridiculously easy to make money with terror attacks.
At a July 28, 2003 press conference, Senators Byron L. Dorgan (D-ND) and Ron Wyden (D-OR) spoke out against the exchange. Wyden stated, “The idea of a federal betting parlor on atrocities and terrorism is ridiculous and it's grotesque,” while Dorgan called it “useless, offensive and unbelievably stupid”.
“This appears to encourage terrorists to participate, either to profit from their terrorist activities or to bet against them in order to mislead U.S. intelligence authorities,” they said in a letter to Admiral John Poindexter, the director of the Terrorism Information Awareness Office, which developed the idea. A week after the exchange closed, Poindexter offered his resignation.
Carbon Credit Trading
A massive new derivatives market that could be as destructive as the derivatives that contributed to the current economic meltdown is the trading platform called Carbon Credit Trading, which is on its way to dwarfing world oil trade. The program would allow trading not only in “carbon allowances” (permitting companies to emit greenhouse gases) and “carbon offsets” (allowing companies to emit beyond their allowance if they invest in emission-reducing projects elsewhere), but carbon derivatives -- such as futures contracts to deliver a certain number of allowances at an agreed price and time. Eoin O’Carroll cautioned in the Christian Science Monitor:
“Many critics are pointing out that this new market for carbon derivatives could, without effective oversight, usher in another Wall Street free-for-all just like the one that precipitated the implosion of the global economy. . . . Just as the inability of homeowners to make good on their subprime mortgages ended up pulling the rug out from under the credit market, carbon offsets that are based on shaky greenhouse-gas mitigation projects could cause the carbon market to tank, with implications for the broader economy.”
Robert Shapiro, former undersecretary of commerce in the Clinton administration and a cofounder of the U.S. Climate Task Force, warns, “We are on the verge of creating a new trillion-dollar market in financial assets that will be securitized, derivatized, and speculated by Wall Street like the mortgage-backed securities market.”
The proposed form of cap and trade has not yet been passed in the U.S., but a new market in which traders can speculate on the future of allowances and offsets has already been launched. The largest players in the carbon credit trading market include firms such as Morgan Stanley, Barclays Capital, Fortis, Deutsche Bank, Rabobank, BNP Paribas, Sumitomo, Kommunalkredit, Credit Suisse, Merrill Lynch and Cantor Fitzgerald. Last year, the financial services industry had 130 lobbyists working on climate issues, compared to almost none in 2003. The lobbyists represented companies such as Goldman Sachs and JPMorgan Chase.
Billionaire financier George Soros says cap-and-trade will be easy for speculators to rig. “The system can be gamed,” he said last July at a London School of Economics seminar. “That’s why financial types like me like it — because there are financial opportunities.”
Time to Board Up the Casinos and Rethink Our Social Safety Net?
At one time, gambling was called a sin and was illegal. Derivative trading was originally considered an illegal form of gambling. Perhaps it is time to reinstate the gambling laws, board up the derivatives casinos, and return the stock market to what it was designed to be: a means of funneling the capital of investors into productive businesses.
Short of banning derivatives altogether, the derivatives business could be slowed up considerably by imposing a Tobin tax, a small tax on every financial trade. “Financial products” are virtually the only products left on the planet that are not currently subject to a sales tax.
A larger issue is how to ensure adequate retirement income for the population without forcing people into gambling with their life savings to supplement their meager social security checks. It may be time to rethink not only our banking and financial structure but the entire social umbrella that our Founding Fathers called the Common Wealth.
Deficit hawks cry that we cannot afford more spending. But according to Richard Cook, who formerly served at the U.S. Treasury Department, the government could print and spend several trillion new dollars into the money supply without causing price inflation. Writing in Global Research in April 2007, he noted that the U.S. Gross Domestic Product in 2006 came to $12.98 trillion, while the total national income came to only $10.23 trillion; and at least 10 percent of that income was reinvested rather than spent on goods and services.
Total available purchasing power was thus only about $9.21 trillion, or $3.77 trillion less than the collective price of goods and services sold. Where did consumers get the extra $3.77 trillion? They had to borrow it, and they borrowed it from banks that created it with accounting entries on their books. If the government had replaced this bank-created money with debt-free government-created money, the total money supply would have remained unchanged. That means a whopping $3.77 trillion in new government-issued money could have been fed into the economy in 2006 without increasing the inflation rate.
In a 1924 book called Social Credit, C. H. Douglas suggested that government-issued money could be used to pay a guaranteed basic income for all. Richard Cook proposes a national dividend of $10,000 per adult and $5,000 per dependent child annually. In 2007, that would have worked out to about $2.6 trillion to provide a basic security blanket for everyone.
The Federal Reserve has funneled $4.6 trillion to Wall Street in bailout money, most of it generated via “quantitative easing” (in effect, printing money); yet hyperinflation has not resulted. To the contrary, what we have today is dangerous deflation. The M3 money supply shrank in the last year by 5.5 percent, and the rate at which it is shrinking is accelerating. The explanation for this anomaly is that the Fed’s $4.6 trillion added by quantitative easing fell far short of the estimated $10 trillion that disappeared from the money supply when the “shadow lenders” exited the market, after discovering that the “triple-A” mortgage-backed securities they had been purchasing from Wall Street were actually very risky investments.
Whether or not a national dividend is the best way to reflate the money supply, the important point here is that the government might be able to issue and spend several trillion dollars into the economy without creating hyperinflation. The money would merely make up for the shortfall between GDP and purchasing power, replacing the debt-money created as loans by private banks. As long as resources are sitting idle and people are unemployed -- and as long as the new money is used to put these resources together productively to create new goods and services -- price inflation will not result. Creating the national money supply is the sovereign right of governments, not of banks; and if the government wants to remain sovereign, it needs to exercise that right.
Sen. Ted Kaufman
Huffington Post
Posted: July 15, 2010 01:22 PM
After months of careful consideration, landmark financial reform legislation moves towards final passage. While this bill is a vast improvement over the existing regulatory structure, I believe it should go further with respect to erecting statutory walls that address the fundamental problem of "too big to fail." I will support the conference report, though I do so with significant reservations about a missed opportunity to enact needed structural reforms that would better prevent another financial crisis.
Ultimately, given the make-up of the Senate and the requirement of 60 votes, this was the best bill that could pass. For those who wish the bill was stronger, let there be no confusion about where the blame lies. It is because almost every Senator on the other side of the aisle did everything they could to stall, delay and oppose Wall Street reform.
To be sure, the bill that has come out of conference includes some extremely important reforms. It establishes an independent Consumer Financial Protection Bureau (CFPB) with strong and autonomous rulemaking authority and the ability to enforce those rules for large banks and nonbanking entities like payday lenders and mortgage finance companies. In addition, it requires electronic trading and centralized clearing of standardized over-the-counter derivatives contracts as well as more robust collateral and margin requirements. The bill's inclusion of the Kanjorski provision will give regulators the explicit authority to break up megabanks that pose a "grave threat" to financial stability. And I was pleased that the bill includes a provision I helped develop to give regulators enhanced tools and powers to pursue financial fraud.
Through the Collins provision, the bill also establishes minimum leverage and risk-based capital requirements for bank holding companies and systemically risky non-bank institutions that are at least as stringent as those that apply to insured depository institutions. In light of the failures of past international capital accords, this requirement will set a much-needed floor on how low capital can drop in the upcoming Basel III negotiations on capital requirements. It will also ensure that the capital base of megabanks is not adulterated with debt that masquerades as equity capital.
That being said, unfortunately, I believe the bill suffers from two major problems. First, the bill delegates too much authority to the regulators. I've been around the Senate for 37 years. As I said on the Senate floor on February 4th of this year and in several speeches since then, I know that many times laws are not written with hard and clear lines. Laws are a product of legislative compromise, which often means they are vague and ambiguous. We often justify our vagueness by saying the regulators to whom we grant statutory authority are in a better position than we are to write the rules - and then to apply those regulatory rules on a case-by-case basis. But, as I have said, this was not one of those times. This was a time for Congress to draw hard lines that get directly at the structural problems that afflict Wall Street and our largest banks.
Despite repeated urging from me and others to pass laws that would help regulators to succeed, Congress largely has decided instead to punt decisions to the regulators, saddling them with a mountain of rulemakings and studies. The law firm Davis Polk has estimated that the SEC alone must undertake close to 100 rulemakings and more than a dozen studies.
Indeed, Congress has so choked the agencies with rulemakings and studies, the totality of the burden threatens to undermine the very ability of the agencies to accomplish their ongoing everyday mission. I for one urge the agencies to triage carefully these required rulemakings and studies, establish a hierarchy of priorities, and ensure that the agencies do not shift all resources to new rules meant to address old problems to such a degree that they fail to stay on top of current and growing problems. I will have more to say on this subject in a future speech.
Second, the legislation does not go far enough in addressing the fundamental problem of "too big to fail." Instead of erecting enduring statutory walls as we did in the 1930s, the bill invests the same regulators who failed to prevent the financial crisis with additional discretion and relies upon a resolution regime to successfully unwind complex and interconnected mega-banks engaged across the globe. I am also disappointed that key reform provisions like the Volcker Rule and the Lincoln swaps dealers spin-off provision were scaled back in conference.
The bill mainly places its faith and trust in regulatory discretion and on international agreements on bank capital requirements and supervision. After decades of deregulation and industry self-regulation, it is incumbent upon the regulators now to reassert themselves and establish rulemaking and supervisory frameworks that not only correct their glaring mistakes of the past, but also anticipate future problems, particularly risks to financial stability. Unfortunately, the early indications we are seeing out of the G-20 and so-called Basel III discussions are not encouraging, as critical reforms are already being watered down and pushed back in part because some foreign regulators carelessly refuse to heed the risks posed by their megabanks.
The legislation also puts in place a resolution authority to deal with these institutions when they inevitably get into trouble. While such authority is absolutely necessary, it is not sufficient. That is because no matter how well Congress crafts a resolution mechanism, there can never be an orderly wind-down of a $2-trillion financial institution that has hundreds of billions of dollars of off-balance-sheet assets, relies heavily on wholesale funding, and has more than a toehold in over 100 countries. Of course, since financial crises are macro events that will undoubtedly affect multiple megabanks simultaneously, resolution of these institutions will be enormously expensive. And until there is international agreement on resolution authority, it is probably unworkable.
Given the history of financial regulatory failures and the enormous burden of rulemakings and studies with which the regulators are being tasked, Congress has a critical oversight responsibility. Congress first must ensure that the regulators have enough staff and resources at their disposal to follow through on their serious obligations. Just as important, Congress must monitor the regulatory phase of this bill's implementation closely to ensure that the regulators don't return to "business as usual" when the experience of the most recent financial crisis fades into memory.
Volcker Rule
For example, in addition to granting great discretion to regulators on how they interpret the ban on proprietary trading at banks, the scaled-back Volcker Rule contains a large loophole that allows megabanks to continue to own, control and manage hedge funds and private equity funds under certain conditions. Most notably, it includes a de minimis exception that permits banks to invest up to three percent of Tier 1 capital in hedge funds and private equity funds so long as their investments don't constitute more than three percent ownership in the individual funds.
The impact of a supposedly small three percent de minimis exception for investments in hedge funds and private equity firms has the potential to be massive. For example, a $2 trillion bank that has $100 billion in Tier 1 capital would be able to invest $3 billion into hedge funds. Since that $3 billion could only constitute three percent ownership, it would need to be invested alongside at least $97 billion of funds from outside investors. The bank would therefore be able to manage $100 billion in hedge fund assets, a massive amount equal to the current size of the largest hedge funds in the world combined. What's more, that $100 billion in assets can be leveraged several times over through the use of borrowed funds and derivatives into overall exposures that could exceed a trillion dollars. And given the ambiguity of the legislative language, unless clarified by a rulemaking, some commentators have indicated that megabanks could potentially provide prime brokerage loans to hedge funds they partially own and run.
Fortunately, the final bill does place costs on banks' de minimis investments in hedge funds and private equity funds. Specifically, the legislation requires a 100% capital charge on these proprietary investments, making them expensive for banks to hold. While this may be a helpful deterrent, I am concerned that it will not be enough of one, particularly when considering how lucrative and risky an activity it is for banks to run hedge funds and private equity funds.
The overarching problem is that banks will continue to be able to offer and run - never mind, partially own - risky investment funds. Even though the scaled-back Volcker Rule includes a "no bailout" provision, I have concerns about the credibility of that edict. Under any circumstance, the failure of a massive hedge fund run by a megabank would pose serious reputational and financial risks to that institution.
Just look at what happened when the structured investment vehicles (or SIVs) of Citigroup and other megabanks began to falter. Because of the reputational consequences of liquidating these funds and allowing them to default on their funding obligations, they were bailed out by the megabanks that spawned them even though the SIVs themselves were generally separate, off-balance-sheet entities with no official backing from the banks.
Finally, the strength of the core part of the Volcker Rule - the ban on proprietary trading - will depend greatly on the interpretation of the regulators. They will ultimately be the arbiter of whether broad statutory exceptions for "market making" or "risk-mitigating hedging" or "purchases" or "sales" of securities on "behalf of customers" are allowed to swallow the putative prohibition. I therefore urge the regulators to construe narrowly those activities that constitute exceptions to proprietary trading to ensure that the Volcker Rule has some teeth in it.
Swaps Dealer Spin-Off
Senator Lincoln's original swap dealer spin-off provision would have prohibited banks with swap dealers from receiving emergency assistance from the Federal Reserve or FDIC. By essentially forcing megabanks to spin off their swap dealers into an affiliate or separate company, this section would have helped restore the wall between the government-guaranteed part of the financial system and those financial entities that remain free to take on greater risk. It would also have forced derivatives dealers to be adequately capitalized.
While the final bill includes the Lincoln provision, it limits its application to derivatives that reference assets that are permissible for banks to hold and invest in under the National Bank Act. Since that exception covers interest rate, foreign exchange and other swaps, it ultimately exempts close to 90% of the over-the-counter derivatives market. Regulators must therefore reduce counterparty exposures by requiring the vast majority of derivatives contracts to be cleared and calibrate carefully the amount of capital that bank derivative dealers must maintain. Only then can we be sure we never again face a meltdown caused by excessively leveraged derivatives exposure that no regulator helps to keep in check.
Conclusion
The financial reform bill places enormous responsibilities and discretion into the hands of the regulators. Its ultimate success or failure will depend on the actions and follow-through of these regulators for many years to come. It is estimated that various federal agencies will be charged with writing over 200 rulemakings and dozens of studies. Many of the same regulators who failed in the run-up to the last crisis will once again be given the solemn task of safeguarding our financial stability. Like many others, I am concerned whether they have the capacity and wherewithal to succeed in this endeavor.
I repeat again, Congress has an important role to play in overseeing the enormous regulatory process that will ensue following the bill's enactment. The American people, for that matter, must stay focused on these issues, if just to help ensure that Congress indeed will fulfill its oversight duty and its duty to intervene if the regulators fail. Likewise, although I will be leaving the Senate in November, I will be watching closely to see how the regulators follow through on the enormous responsibilities they are being handed.
Let us not forget why reform is so necessary and important. After years of Wall Street malfeasance and the systematic dismantling of our regulatory structure, our financial system went into cardiac arrest and our economy nearly fell into the abyss. Wall Street, which had grown out of control on leverage and financial gimmickry, blew up. More than 8 million jobs were wiped out; millions more have lost their homes. We spent trillions of dollars in monetary easing and emergency measures to avert the wholesale failure of many of our megabanks. Not surprisingly, we continue to feel the aftershocks of the worst financial crisis since the Great Depression. The banks are not lending. Fed Chairman Bernanke just days ago urged them to do more for small businesses. Companies and consumers alike remain shaken in their confidence. And despite dramatic stimulus measures, the economic recovery has been slow and tentative.
Many of the opponents of Wall Street reform would like to make the dubious claim that the recovery is being held back by uncertainty about future regulations and taxes. In reality, it is being held back by the financial shock and the fact that we are still in a period of financial instability and undergoing an excruciating process of deleveraging. Even now it is unclear whether a European banking crisis based on their holdings of sovereign debt will continue to impede that recovery.
It is therefore imperative that we build a financial system on a firmer foundation. The American economy cannot succeed unless we restore and maintain financial stability. We simply cannot afford another financial crisis or continued financial instability if the American economy is to succeed in the coming decades. Getting financial regulation right and maintaining it for years to come should be one of this nation's highest priorities because the price of failure is far too high.
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Dylan Ratigan Says "Watered-Down" Financial Reform Bill Won't Prevent Another Finacial Collapse--- Please watch video for Details
Visit msnbc.com for breaking news, world news, and news about the economy
Dylan Ratigan:
--40% of financial contributions to Congress come from Financial Industry.
--After Senate Bill passed committee, big bank stocks rebounded sharply.
--According to Bloomberg poll, 4 of 5 Americans don't trust Wall Street/Fin-Reg.
--Over $300 million spent by Financial Industry to get the bill they wanted.
--Fin-Reg bill did not reign-in excessive leveraging by investment banks.
--Bill does not prevent future tax-payer bailouts of too big to fail banks.
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How Financial Brokers Became Bookies: The Insidious Transformation of Markets Into Casinos
By Ellen Brown
Global Research,
July 13, 2010
"You all are the house, you're the bookie. [Your clients] are booking their bets with you. I don't know why we need to dress it up. It's a bet." Senator Claire McCaskill, Senate Subcommittee on Investigations, investigating Goldman Sachs (Washington Post, April 27, 2010)
Ever since December 2008, the Federal Reserve has held short-term interest rates near zero. This was not only to try to stimulate the housing and credit markets but also to allow the federal government to increase its debt levels without increasing the interest tab picked up by the taxpayers. The total public U.S. debt increased by nearly 50% from 2006 to the end of 2009 (from about $8.5 trillion to $12.3 trillion), but the interest bill on the debt actually dropped (from $406 billion to $383 billion), because of this reduction in interest rates.
One of the dire unintended consequences of that maneuver, however, was that municipal governments across the country have been saddled with very costly bad derivatives bets. They were persuaded by their Wall Street advisers to buy credit default swaps to protect their loans against interest rates shooting up. Instead, rates proceeded to drop through the floor, a wholly unforeseeable and unnatural market condition caused by rate manipulations by the Fed. Instead of the banks bearing the losses in return for premiums paid by municipal governments, the governments have had to pay massive sums to the banks – to the point of bankrupting at least one city (Montgomery, Alabama).
Another unintended consequence of the plunge in interest rates has been that “savers” have been forced to become “speculators” or gamblers. When interest rates on safe corporate bonds were around 8%, a couple could aim for saving half a million dollars in their working careers and count on reaping $40,000 yearly in investment income, a sum that, along with social security, could make for a comfortable retirement. But very low interest rates on bonds have forced these once-prudent savers into the riskier and less predictable stock market, and the collapse of the stock market has forced them into even more speculative ventures in the form of derivatives, a glorified form of gambling. Pension funds, which have binding pension contracts entered into when interest was at much higher levels, are so strapped for returns that they actually seek out the riskier investments, which have higher returns. That means they can and do regularly get fleeced when the risk occurs.
Derivatives are basically just bets. Like at a racetrack, you don’t need to own the thing you’re betting on in order to play. Derivative casinos have opened up on virtually anything that can go up or down or have a variable future outcome. You can bet on the price of tea in China, the success or failure of a movie, whether a country will default on its debt, or whether a particular piece of legislation will pass. The global market in derivative trades is now well over a quadrillion dollars – that’s a thousand trillion – and it is eating up resources that were at one time invested in productive enterprises. Why risk lending money to a corporation or buying its stock, when you can reap a better return betting on whether the stock will rise or fall?
The shift from investing to gambling means that not only are investors making very little of their money available to companies to produce goods and services, but the parties on one side of every speculative trade now have an interest in seeing the object of the bet fail, whether a company, a movie, a politician, or a country. Worse, high-speed program traders can actually manipulate the market so that the thing bet on is more likely to fail.
High frequency traders -- a field led by Goldman Sachs -- use computer algorithms to automatically bet huge sums of money on minor shifts in price. These bets send signals to the market which can themselves cause the price of assets to shoot up or tumble down. By placing high-volume trades, the largest speculative traders can thus intentionally “fix” prices in any direction they want.
“Prediction” Markets
Casinos for betting on what something will do in the future have been promoted as reliable “prediction” markets, and they can cover a broad range of issues. MIT’s Technology Review launched a futures market for technological innovations, in order to bet on upcoming developments. The NewsFutures and TradeSports Exchanges enable people to wager on matters such as whether Tiger Woods will take another lover, or whether Bin Laden will be found in Afghanistan.
A 2008 conference of sports leaders in Auckland, New Zealand, featured Mark Davies, head of a sport betting exchange called Betfair. Davies observed that these betting exchanges, while clearly gambling forums, are little different from the trading done by financial firms such as JPMorgan. He said:
“I used to trade bonds at JPMorgan, and I can tell you that what our customers do is exactly the same as what I used to do in my previous life, with the single exception that where I had to pore over balance sheets and income statements, they pore over form and team-sheets.”
The online news outlet Slate monitors various prediction markets to provide readers with up-to-date information on the potential outcomes of political races. Two of the markets covered are the Iowa Electronic Markets and Intrade. Slate claims that these political casinos are consistently better at forecasting winners than pre-election polls. Participants bet real money 24 hours a day on the outcomes of a range of issues, including political races. Newsfutures and Casualobserver are similar, smaller exchanges.
Besides shifting the emphasis to gambling (“Why Vote When You Can Bet?” says Slate’s “Guide to All Political Markets”), prediction markets can be manipulated so that they actually affect outcomes. This became evident, for example, in 2008, when the John McCain campaign used the InTrade market to shift perception of his chances of winning. A supporter was able to single-handedly manipulate the price of McCain’s contract, causing it to move up in the market and prompting some mainstream media to report it as evidence that McCain was gaining in popularity.
Betting on Terrorism
The destructive potential of betting on political outcomes became particularly apparent in a notorious prediction market sponsored by the Pentagon, called the “policy analysis market” (PAM) or “terror futures market.” PAM was an attempt to use the predictive power of markets to forecast political events tied to the Middle East, including terrorist attacks. Trading in American Airlines shares in the days before the September 11th attack on the World Trade Center was one of the bases of the Pentagon’s justification for the program. According to the New York Times, the PAM would have allowed trading of futures on political developments including terrorist attacks, coups d’état, and assassinations.
The exchange was shut down a day after it launched, after commentators pointed out that the system made it ridiculously easy to make money with terror attacks.
At a July 28, 2003 press conference, Senators Byron L. Dorgan (D-ND) and Ron Wyden (D-OR) spoke out against the exchange. Wyden stated, “The idea of a federal betting parlor on atrocities and terrorism is ridiculous and it's grotesque,” while Dorgan called it “useless, offensive and unbelievably stupid”.
“This appears to encourage terrorists to participate, either to profit from their terrorist activities or to bet against them in order to mislead U.S. intelligence authorities,” they said in a letter to Admiral John Poindexter, the director of the Terrorism Information Awareness Office, which developed the idea. A week after the exchange closed, Poindexter offered his resignation.
Carbon Credit Trading
A massive new derivatives market that could be as destructive as the derivatives that contributed to the current economic meltdown is the trading platform called Carbon Credit Trading, which is on its way to dwarfing world oil trade. The program would allow trading not only in “carbon allowances” (permitting companies to emit greenhouse gases) and “carbon offsets” (allowing companies to emit beyond their allowance if they invest in emission-reducing projects elsewhere), but carbon derivatives -- such as futures contracts to deliver a certain number of allowances at an agreed price and time. Eoin O’Carroll cautioned in the Christian Science Monitor:
“Many critics are pointing out that this new market for carbon derivatives could, without effective oversight, usher in another Wall Street free-for-all just like the one that precipitated the implosion of the global economy. . . . Just as the inability of homeowners to make good on their subprime mortgages ended up pulling the rug out from under the credit market, carbon offsets that are based on shaky greenhouse-gas mitigation projects could cause the carbon market to tank, with implications for the broader economy.”
Robert Shapiro, former undersecretary of commerce in the Clinton administration and a cofounder of the U.S. Climate Task Force, warns, “We are on the verge of creating a new trillion-dollar market in financial assets that will be securitized, derivatized, and speculated by Wall Street like the mortgage-backed securities market.”
The proposed form of cap and trade has not yet been passed in the U.S., but a new market in which traders can speculate on the future of allowances and offsets has already been launched. The largest players in the carbon credit trading market include firms such as Morgan Stanley, Barclays Capital, Fortis, Deutsche Bank, Rabobank, BNP Paribas, Sumitomo, Kommunalkredit, Credit Suisse, Merrill Lynch and Cantor Fitzgerald. Last year, the financial services industry had 130 lobbyists working on climate issues, compared to almost none in 2003. The lobbyists represented companies such as Goldman Sachs and JPMorgan Chase.
Billionaire financier George Soros says cap-and-trade will be easy for speculators to rig. “The system can be gamed,” he said last July at a London School of Economics seminar. “That’s why financial types like me like it — because there are financial opportunities.”
Time to Board Up the Casinos and Rethink Our Social Safety Net?
At one time, gambling was called a sin and was illegal. Derivative trading was originally considered an illegal form of gambling. Perhaps it is time to reinstate the gambling laws, board up the derivatives casinos, and return the stock market to what it was designed to be: a means of funneling the capital of investors into productive businesses.
Short of banning derivatives altogether, the derivatives business could be slowed up considerably by imposing a Tobin tax, a small tax on every financial trade. “Financial products” are virtually the only products left on the planet that are not currently subject to a sales tax.
A larger issue is how to ensure adequate retirement income for the population without forcing people into gambling with their life savings to supplement their meager social security checks. It may be time to rethink not only our banking and financial structure but the entire social umbrella that our Founding Fathers called the Common Wealth.
Deficit hawks cry that we cannot afford more spending. But according to Richard Cook, who formerly served at the U.S. Treasury Department, the government could print and spend several trillion new dollars into the money supply without causing price inflation. Writing in Global Research in April 2007, he noted that the U.S. Gross Domestic Product in 2006 came to $12.98 trillion, while the total national income came to only $10.23 trillion; and at least 10 percent of that income was reinvested rather than spent on goods and services.
Total available purchasing power was thus only about $9.21 trillion, or $3.77 trillion less than the collective price of goods and services sold. Where did consumers get the extra $3.77 trillion? They had to borrow it, and they borrowed it from banks that created it with accounting entries on their books. If the government had replaced this bank-created money with debt-free government-created money, the total money supply would have remained unchanged. That means a whopping $3.77 trillion in new government-issued money could have been fed into the economy in 2006 without increasing the inflation rate.
In a 1924 book called Social Credit, C. H. Douglas suggested that government-issued money could be used to pay a guaranteed basic income for all. Richard Cook proposes a national dividend of $10,000 per adult and $5,000 per dependent child annually. In 2007, that would have worked out to about $2.6 trillion to provide a basic security blanket for everyone.
The Federal Reserve has funneled $4.6 trillion to Wall Street in bailout money, most of it generated via “quantitative easing” (in effect, printing money); yet hyperinflation has not resulted. To the contrary, what we have today is dangerous deflation. The M3 money supply shrank in the last year by 5.5 percent, and the rate at which it is shrinking is accelerating. The explanation for this anomaly is that the Fed’s $4.6 trillion added by quantitative easing fell far short of the estimated $10 trillion that disappeared from the money supply when the “shadow lenders” exited the market, after discovering that the “triple-A” mortgage-backed securities they had been purchasing from Wall Street were actually very risky investments.
Whether or not a national dividend is the best way to reflate the money supply, the important point here is that the government might be able to issue and spend several trillion dollars into the economy without creating hyperinflation. The money would merely make up for the shortfall between GDP and purchasing power, replacing the debt-money created as loans by private banks. As long as resources are sitting idle and people are unemployed -- and as long as the new money is used to put these resources together productively to create new goods and services -- price inflation will not result. Creating the national money supply is the sovereign right of governments, not of banks; and if the government wants to remain sovereign, it needs to exercise that right.
Sunday, May 3, 2009
Top Senate Democrat: Bankers 'Own' the US Congress
By Glenn Greenwald
May 01, 2009 "Salon.com" -- Sen. Dick Durbin, on a local Chicago radio station this week, blurted out an obvious truth about Congress that, despite being blindingly obvious, is rarely spoken: "And the banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place." The blunt acknowledgment that the same banks that caused the financial crisis "own" the U.S. Congress -- according to one of that institution's most powerful members -- demonstrates just how extreme this institutional corruption is.
The ownership of the federal government by banks and other large corporations is effectuated in literally countless ways, none more effective than the endless and increasingly sleazy overlap between government and corporate officials. Here is just one random item this week announcing a couple of standard personnel moves:
Former Barney Frank staffer now top Goldman Sachs lobbyist
Goldman Sachs' new top lobbyist was recently the top staffer to Rep. Barney Frank, D-Mass., on the House Financial Services Committee chaired by Frank. Michael Paese, a registered lobbyist for the Securities Industries and Financial Markets Association since he left Frank's committee in September, will join Goldman as director of government affairs, a role held last year by former Tom Daschle intimate, Mark Patterson, now the chief of staff at the Treasury Department. This is not Paese's first swing through the Wall Street-Congress revolving door: he previously worked at JP Morgan and Mercantile Bankshares, and in between served as senior minority counsel at the Financial Services Committee.
So: Paese went from Chairman Frank's office to be the top lobbyist at Goldman, and shortly before that, Goldman dispatched Paese's predecessor, close Tom Daschle associate Mark Patterson, to be Chief of Staff to Treasury Secretary Tim Geithner, himself a protege of former Goldman CEO Robert Rubin and a virtually wholly owned subsidiary of the banking industry. That's all part of what Desmond Lachman -- American Enterprise Institute fellow, former chief emerging market strategist at Salomon Smith Barney and top IMF official (no socialist he) -- recently described as "Goldman Sachs's seeming lock on high-level U.S. Treasury jobs."
Meanwhile, the above-linked Huffington Post article which reported on Durbin's comments also notes Sen. Evan Bayh's previously-reported central role on behalf of the bankers in blocking legislation, hated by the banking industry, to allow bankruptcy judges to alter the terms of mortgages so that families can stay in their homes. Bayh is up for re-election in 2010, and here -- according to the indispensable Open Secrets site -- is Bayh's top donor:
Goldman is also the top donor to Bayh over the course of his Congressional career, during which Bayh has received more than $4 million from the finance, insurance and real estate sectors:
In a totally unrelated coincidence -- after the Government, as Matt Taibbi put it, enacted "a bailout program that has now figured three ways to funnel money to Goldman, Sachs"-- this is what happened earlier this month:
Goldman reports $1.8 billion profit
Goldman Sachs reported a much stronger-than-expected first-quarter profit Monday, bouncing back from its worst quarter as a public company. . . .
In reporting its results a day earlier than expected, New York-based Goldman said it earned $1.81 billion, or $3.39 a share, for the quarter ended March 31. Analysts surveyed by Thomson Financial were looking for a profit of $1.64 a share.
Goldman shares, which have surged more than 70% during the past month, continued rising late Monday, gaining about 4.7% for the day.
Nobody even tries to hide this any longer. The only way they could make it more blatant is if they hung a huge Goldman Sachs logo on the Capitol dome and then branded it onto the foreheads of leading members of Congress and executive branch officials.
Of course, ownership of the government is not confined to Goldman or even to bankers generally; legislation in virtually every area is written by the lobbyists dispatched by the corporations that demand it, and its passage then ensured by "representatives" whose pockets are stuffed with money from those same corporations. Just as one example, as Jane Hamsher reported about Bayh:
Bayh's little "lobbyist problem" is considered by many to be what tanked his Vice Presidential aspirations. His wife Susan earns about $837,000 a year serving on seven corporate boards, among them Wellpoint, a health insurance company for which Bayh helped secure a $24.7 million dollar grant. She's on the board of ETrade, even as Bayh is on the Senate Finance Committee.
Bayh wants people to believe he's a "moderate" who sits in the "center."
Center of K Street, maybe.
Meanwhile, the only citizen protests relating to this mass robbery are driven by anger at the government for treating bankers too harshly and unfairly -- one of the most classic manifestations of what Taibbi, in a separate piece, so aptly calls the "peasant mentality":
After all, the reason the winger crowd can't find a way to be coherently angry right now is because this country has no healthy avenues for genuine populist outrage. It never has. The setup always goes the other way: when the excesses of business interests and their political proteges in Washington leave the regular guy broke and screwed, the response is always for the lower and middle classes to split down the middle and find reasons to get pissed off not at their greedy bosses but at each other. That's why even people like [Glenn] Beck's audience, who I'd wager are mostly lower-income people, can't imagine themselves protesting against the Wall Street barons who in actuality are the ones who fucked them over. . . .
Actual rich people can't ever be the target. It's a classic peasant mentality: going into fits of groveling and bowing whenever the master's carriage rides by, then fuming against the Turks in Crimea or the Jews in the Pale or whoever after spending fifteen hard hours in the fields. You know you're a peasant when you worship the very people who are right now, this minute, conning you and taking your shit. Whatever the master does, you're on board. When you get frisky, he sticks a big cross in the middle of your village, and you spend the rest of your life praying to it with big googly eyes. Or he puts out newspapers full of innuendo about this or that faraway group and you immediately salute and rush off to join the hate squad. A good peasant is loyal, simpleminded, and full of misdirected anger. And that's what we've got now, a lot of misdirected anger searching around for a non-target to mis-punish . . . can't be mad at AIG, can't be mad at Citi or Goldman Sachs. The real villains have to be the anti-AIG protesters! After all, those people earned those bonuses! If ever there was a textbook case of peasant thinking, it's struggling middle-class Americans burned up in defense of taxpayer-funded bonuses to millionaires. It's really weird stuff.
One might think it would be a big news story for the second most-powerful member of the U.S. Senate to baldly state that the Congress is "owned" by the bankers who spawned the financial crisis and continue to dictate the government's actions. But it won't be. The leading members of the media work for the very corporations that benefit most from this process. Establishment journalists are integral and well-rewarded members of the same system and thus cannot and will not see it as inherently corrupt (instead, as Newsweek's Evan Thomas said, their role, as "members of the ruling class," is to "prop up the existing order," "protect traditional institutions" and "safeguard the status quo").
That Congress is fully owned and controlled by a tiny sliver of narrow, oligarchical, deeply corrupted interests is simultaneously so obvious yet so demonized (only Unserious Shrill Fringe radicals, such as the IMF's former chief economist, use that sort of language) that even Durbin's explicit admission will be largely ignored. Even that extreme of a confession (Durbin elaborated on it with Ed Schultz last night) hardly causes a ripple.
Editor's NOTE:
It is indeed surprising that Senator Durbin would be so candid with respect to the control that the banking industry has over US economic policy. He neglected to indicate however that President Obama is also heavily influenced by the dictates of the banking lobby--especially since his Treasury Secretary Timothy Guithner (former head of the New York Federal Reserve Bank and protege of Robert Rubin) is known to have an incestuous relationship with the leading investment banks. Guithner was also intimately involved with the Henry Paulson/George W. Bush initial bank bailout scheme which last fall was hurriedly passed under the guise of providing a vehicle by which the federal government would buy-up toxic bank assets with the goal of returning the large investment banks to healthy profitability. As everyone now knows, despite a second bank bailout, no toxic assets have yet been properly accounted for, valued or purchased. Instead the bailout recipient banks have taken federal money and utilized it to purchase other banks and pay unwarranted corporate bonuses while failing to increase lending to consumers.
Senator Durbin indicated that the needed re-regulation of the banking industry is being met with tremendous resistance by the banking lobby and the members of Congress whom it controls. Moreover, it appears that the banking industry has effectively eliminated the possibility that judges could reduce home-owner mortgages to levels which they might still be capable of paying. To date, Americans who need relief are being abandoned while those who caused the present crisis are allowed to escape punishment for their immoral deeds. They will benefit financially as long as the government continues to make them whole at public expense. The entire situation is extremely immoral and is destructive of the common good.
Unless and until a Resolution Trust Type (RCT) vehicle is developed by which the toxic assets can be appropriately valued and disposed of--the current banking crisis will continue. If a Glass-Steagall type act is not part of significant re-regulation of the banking industry, the excesses (over-leveraging and continuation of inherently immoral derivative vehicles such as CDO's, CDS's, MBS's etc.) will continue in the future. To date, it appears that none of the desperately needed changes are in the offing.
--Dr. J. P. Hubert
May 01, 2009 "Salon.com" -- Sen. Dick Durbin, on a local Chicago radio station this week, blurted out an obvious truth about Congress that, despite being blindingly obvious, is rarely spoken: "And the banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place." The blunt acknowledgment that the same banks that caused the financial crisis "own" the U.S. Congress -- according to one of that institution's most powerful members -- demonstrates just how extreme this institutional corruption is.
The ownership of the federal government by banks and other large corporations is effectuated in literally countless ways, none more effective than the endless and increasingly sleazy overlap between government and corporate officials. Here is just one random item this week announcing a couple of standard personnel moves:
Former Barney Frank staffer now top Goldman Sachs lobbyist
Goldman Sachs' new top lobbyist was recently the top staffer to Rep. Barney Frank, D-Mass., on the House Financial Services Committee chaired by Frank. Michael Paese, a registered lobbyist for the Securities Industries and Financial Markets Association since he left Frank's committee in September, will join Goldman as director of government affairs, a role held last year by former Tom Daschle intimate, Mark Patterson, now the chief of staff at the Treasury Department. This is not Paese's first swing through the Wall Street-Congress revolving door: he previously worked at JP Morgan and Mercantile Bankshares, and in between served as senior minority counsel at the Financial Services Committee.
So: Paese went from Chairman Frank's office to be the top lobbyist at Goldman, and shortly before that, Goldman dispatched Paese's predecessor, close Tom Daschle associate Mark Patterson, to be Chief of Staff to Treasury Secretary Tim Geithner, himself a protege of former Goldman CEO Robert Rubin and a virtually wholly owned subsidiary of the banking industry. That's all part of what Desmond Lachman -- American Enterprise Institute fellow, former chief emerging market strategist at Salomon Smith Barney and top IMF official (no socialist he) -- recently described as "Goldman Sachs's seeming lock on high-level U.S. Treasury jobs."
Meanwhile, the above-linked Huffington Post article which reported on Durbin's comments also notes Sen. Evan Bayh's previously-reported central role on behalf of the bankers in blocking legislation, hated by the banking industry, to allow bankruptcy judges to alter the terms of mortgages so that families can stay in their homes. Bayh is up for re-election in 2010, and here -- according to the indispensable Open Secrets site -- is Bayh's top donor:
Goldman is also the top donor to Bayh over the course of his Congressional career, during which Bayh has received more than $4 million from the finance, insurance and real estate sectors:
In a totally unrelated coincidence -- after the Government, as Matt Taibbi put it, enacted "a bailout program that has now figured three ways to funnel money to Goldman, Sachs"-- this is what happened earlier this month:
Goldman reports $1.8 billion profit
Goldman Sachs reported a much stronger-than-expected first-quarter profit Monday, bouncing back from its worst quarter as a public company. . . .
In reporting its results a day earlier than expected, New York-based Goldman said it earned $1.81 billion, or $3.39 a share, for the quarter ended March 31. Analysts surveyed by Thomson Financial were looking for a profit of $1.64 a share.
Goldman shares, which have surged more than 70% during the past month, continued rising late Monday, gaining about 4.7% for the day.
Nobody even tries to hide this any longer. The only way they could make it more blatant is if they hung a huge Goldman Sachs logo on the Capitol dome and then branded it onto the foreheads of leading members of Congress and executive branch officials.
Of course, ownership of the government is not confined to Goldman or even to bankers generally; legislation in virtually every area is written by the lobbyists dispatched by the corporations that demand it, and its passage then ensured by "representatives" whose pockets are stuffed with money from those same corporations. Just as one example, as Jane Hamsher reported about Bayh:
Bayh's little "lobbyist problem" is considered by many to be what tanked his Vice Presidential aspirations. His wife Susan earns about $837,000 a year serving on seven corporate boards, among them Wellpoint, a health insurance company for which Bayh helped secure a $24.7 million dollar grant. She's on the board of ETrade, even as Bayh is on the Senate Finance Committee.
Bayh wants people to believe he's a "moderate" who sits in the "center."
Center of K Street, maybe.
Meanwhile, the only citizen protests relating to this mass robbery are driven by anger at the government for treating bankers too harshly and unfairly -- one of the most classic manifestations of what Taibbi, in a separate piece, so aptly calls the "peasant mentality":
After all, the reason the winger crowd can't find a way to be coherently angry right now is because this country has no healthy avenues for genuine populist outrage. It never has. The setup always goes the other way: when the excesses of business interests and their political proteges in Washington leave the regular guy broke and screwed, the response is always for the lower and middle classes to split down the middle and find reasons to get pissed off not at their greedy bosses but at each other. That's why even people like [Glenn] Beck's audience, who I'd wager are mostly lower-income people, can't imagine themselves protesting against the Wall Street barons who in actuality are the ones who fucked them over. . . .
Actual rich people can't ever be the target. It's a classic peasant mentality: going into fits of groveling and bowing whenever the master's carriage rides by, then fuming against the Turks in Crimea or the Jews in the Pale or whoever after spending fifteen hard hours in the fields. You know you're a peasant when you worship the very people who are right now, this minute, conning you and taking your shit. Whatever the master does, you're on board. When you get frisky, he sticks a big cross in the middle of your village, and you spend the rest of your life praying to it with big googly eyes. Or he puts out newspapers full of innuendo about this or that faraway group and you immediately salute and rush off to join the hate squad. A good peasant is loyal, simpleminded, and full of misdirected anger. And that's what we've got now, a lot of misdirected anger searching around for a non-target to mis-punish . . . can't be mad at AIG, can't be mad at Citi or Goldman Sachs. The real villains have to be the anti-AIG protesters! After all, those people earned those bonuses! If ever there was a textbook case of peasant thinking, it's struggling middle-class Americans burned up in defense of taxpayer-funded bonuses to millionaires. It's really weird stuff.
One might think it would be a big news story for the second most-powerful member of the U.S. Senate to baldly state that the Congress is "owned" by the bankers who spawned the financial crisis and continue to dictate the government's actions. But it won't be. The leading members of the media work for the very corporations that benefit most from this process. Establishment journalists are integral and well-rewarded members of the same system and thus cannot and will not see it as inherently corrupt (instead, as Newsweek's Evan Thomas said, their role, as "members of the ruling class," is to "prop up the existing order," "protect traditional institutions" and "safeguard the status quo").
That Congress is fully owned and controlled by a tiny sliver of narrow, oligarchical, deeply corrupted interests is simultaneously so obvious yet so demonized (only Unserious Shrill Fringe radicals, such as the IMF's former chief economist, use that sort of language) that even Durbin's explicit admission will be largely ignored. Even that extreme of a confession (Durbin elaborated on it with Ed Schultz last night) hardly causes a ripple.
Editor's NOTE:
It is indeed surprising that Senator Durbin would be so candid with respect to the control that the banking industry has over US economic policy. He neglected to indicate however that President Obama is also heavily influenced by the dictates of the banking lobby--especially since his Treasury Secretary Timothy Guithner (former head of the New York Federal Reserve Bank and protege of Robert Rubin) is known to have an incestuous relationship with the leading investment banks. Guithner was also intimately involved with the Henry Paulson/George W. Bush initial bank bailout scheme which last fall was hurriedly passed under the guise of providing a vehicle by which the federal government would buy-up toxic bank assets with the goal of returning the large investment banks to healthy profitability. As everyone now knows, despite a second bank bailout, no toxic assets have yet been properly accounted for, valued or purchased. Instead the bailout recipient banks have taken federal money and utilized it to purchase other banks and pay unwarranted corporate bonuses while failing to increase lending to consumers.
Senator Durbin indicated that the needed re-regulation of the banking industry is being met with tremendous resistance by the banking lobby and the members of Congress whom it controls. Moreover, it appears that the banking industry has effectively eliminated the possibility that judges could reduce home-owner mortgages to levels which they might still be capable of paying. To date, Americans who need relief are being abandoned while those who caused the present crisis are allowed to escape punishment for their immoral deeds. They will benefit financially as long as the government continues to make them whole at public expense. The entire situation is extremely immoral and is destructive of the common good.
Unless and until a Resolution Trust Type (RCT) vehicle is developed by which the toxic assets can be appropriately valued and disposed of--the current banking crisis will continue. If a Glass-Steagall type act is not part of significant re-regulation of the banking industry, the excesses (over-leveraging and continuation of inherently immoral derivative vehicles such as CDO's, CDS's, MBS's etc.) will continue in the future. To date, it appears that none of the desperately needed changes are in the offing.
--Dr. J. P. Hubert
Wednesday, November 12, 2008
Who are the Architects of Economic Collapse?
Will an Obama Administration Reverse the Tide?
By Michel Chossudovsky
Global Research, November 9, 2008
Most Serious Economic Crisis in Modern History
The October 2008 financial meltdown is not the result of a cyclical economic phenomenon. It is the deliberate result of US government policy instrumented through the Treasury and the US Federal Reserve Board.
This is the most serious economic crisis in World history.
The "bailout" proposed by the US Treasury does not constitute a "solution" to the crisis. In fact quite the opposite: it is the cause of further collapse. It triggers an unprecedented concentration of wealth, which in turn contributes to widening economic and social inequalities both within and between nations.
The levels of indebtedness have skyrocketed. Industrial corporations are driven into bankruptcy, taken over by the global financial institutions. Credit, namely the supply of loanable funds, which constitutes the lifeline of production and investment, is controlled by a handful of financial conglomerates.
With the "bailout", the public debt has spiraled. America is the most indebted country on earth. Prior to the "bailout", the US public debt was of the order of 10 trillion dollars. This US dollar denominated debt is composed of outstanding treasury bills and government bonds held by individuals, foreign governments, corporations and financial institutions.
"The Bailout": The US Administration is Financing its Own Indebtedness
Ironically, the Wall Street banks --which are the recipients of the bailout money-- are also the brokers and underwriters of the US public debt. Although the banks hold only a portion of the public debt, they transact and trade in US dollar denominated public debt instruments Worldwide.
In a bitter twist, the banks are the recipients of a 700+ billion dollar handout and at the same time they act as creditors of the US government.
We are dealing with an absurd circular relationship: To finance the bailout, Washington must borrow from the banks, which are the recipients of the bailout.
The US administration is financing its own indebtedness.
Federal, State and municipal governments are increasingly in a straight-jacket, under the tight control of the global financial conglomerates. Increasingly, the creditors call the shots on government reform.
The bailout is conducive to the consolidation and a centralization of banking power, which in turn backlashes on real economic activity, leading to a string of bankruptcies and mass unemployment.
Will an Obama Administration Reverse the Tide?
The financial crisis is the outcome of a deregulated financial architecture.
Obama has stated unequivocally his resolve to address the policy failures of the Bush administration and "democratize" the US financial system. President-Elect Barack Obama says that he is committed to reversing the tide:
"Let us remember that if this financial crisis taught us anything, it’s that we cannot have a thriving Wall Street while Main Street suffers. In this country, we rise or fall as one nation, as one people." (President-elect Barack Obama, November 4, 2008, emphasis added)
The Democrats casually blame the Bush administration for the October financial meltdown.
Obama says that he will be introducing an entirely different policy agenda which responds to the interests of Main Street:
"Tomorrow, you can turn the page on policies that put the greed and irresponsibility of Wall Street before the hard work and sacrifice of men and women all across Main Street. Tomorrow you can choose policies that invest in our middle class and create new jobs and grow this economy so that everybody has a chance to succeed, from the CEO to the secretary and the janitor, from the factory owner to the men and women who work on the factory floor.( Barack Obama, election campaign, November 3, 2008, emphasis added)
Is Obama committed to "taming Wall Street" and "disarming financial markets"?
Ironically, it was under the Clinton administration that these policies of "greed and irresponsibility" were adopted.
The 1999 Financial Services Modernization Act (FSMA) was conducive to the the repeal of the Glass-Steagall Act of 1933. A pillar of President Roosevelt’s "New Deal", the Glass-Steagall Act was put in place in response to the climate of corruption, financial manipulation and "insider trading" which resulted in more than 5,000 bank failures in the years following the 1929 Wall Street crash.
Under the 1999 Financial Services Modernization Act, effective control over the entire US financial services industry (including insurance companies, pension funds, securities companies, etc.) had been transferred to a handful of financial conglomerates and their associated hedge funds.
The Engineers of Financial Disaster
Who are the architects of this debacle?
In a bitter irony, the engineers of financial disaster are now being considered by President-Elect Barack Obama's Transition Team for the position Treasury Secretary:
Lawrence Summers played a key role in lobbying Congress for the repeal of the Glass Steagall Act. His timely appointment by President Clinton in 1999 as Treasury Secretary spearheaded the adoption of the Financial Services Modernization Act in November 1999. Upon completing his mandate at the helm of the US Treasury, he became president of Harvard University (2001- 2006).
Paul Volker was chairman of the Federal Reserve Board in the l980s during the Reagan era. He played a central role in implementing the first stage of financial deregulation, which was conducive to mass bankruptcies, mergers and acquisitions, leading up to the 1987 financial crisis.
Timothy Geithner is CEO of the Federal Reserve Bank of New York, which is the most powerful private financial institution in America. He was also a former Clinton administration Treasury official. He has worked for Kissinger Associates and has also held a senior position at the IMF. The FRBNY plays a behind the scenes role in shaping financial policy. Geithner acts on behalf of powerful financiers, who are behind the FRBNY. He is also a member of the Council on Foreign Relations (CFR)
Jon Corzine is currently governor of New Jersey, former CEO of Goldman Sachs.
At the time of writing, Obama's favorite is Larry Summers, front-runner for the position of Treasury Secretary.
Harvard University Economics Professor Lawrence Summers served as Chief Economist for the World Bank (1991–1993). He contributed to shaping the macro-economic reforms imposed on numerous indebted developing countries. The social and economic impact of these reforms under the IMF-World Bank sponsored structural adjustment program (SAP) were devastating, resulting in mass poverty.
Larry Summer's stint at the World Bank coincided with the collapse of the Soviet Union and the imposition of the IMF-World Bank's deadly " economic medicine" on Eastern Europe, the former Soviet republics and the Balkans.
In 1993, Summers moved to the US Treasury. He initially held the position of Undersecretary of the Treasury for international affairs and later Deputy Secretary. In liaison with his former colleagues at the IMF and the World Bank, he played a key role in crafting the economic "shock treatment" reform packages imposed at the height of the 1997 Asian crisis on South Korea, Thailand and Indonesia.
The bailout agreements negotiated with these three countries were coordinated through Summers office at the Treasury in liaison with the Federal Reserve Bank of New York and the Washington based Bretton-Woods institutions. Summers worked closely with IMF Deputy Managing Director Stanley Fischer, who was later appointed Governor of the Central Bank of Israel.
Larry Summers became Treasury Secretary in July 1999. He is a protégé of David Rockefeller. He was among the main architects of the infamous Financial Services Modernization Act, which provided legitimacy to inside trading and outright financial manipulation.
"Putting the Fox in Charge of the Chicken Coop"
Summers is currently a Consultant to Goldman Sachs and managing director of a Hedge fund, the D.E. Shaw Group, As former Treasury Secretary and his contacts on Wall Street, Summers had valuable inside information on the movement of financial markets. Under the helm of Larry Summers and as a direct result of the financial meltdown, the D. E. Shaw Group made record profits. At the end of October 2008, at the height of the financial meltdown, the Shaw Group announced $7 billion in revenue, a 22 percent increase over the previous year, "with nearly three times more cash on hand than a year ago" (theadvocate.com, 31 October 2008).
Putting a Hedge Fund manager (with links to the Wall Street financial establishment) in charge of the Treasury is tantamount to putting the fox in charge of the chicken coop.
The Washington Consensus
Summers, Geithner, Corzine, Volker, Fischer, Phil Gramm, Bernanke, Hank Paulson, Rubin, not to mention Alan Greenspan, al al. are buddies, they play golf together; they have links to the Council on Foreign Relations and the Bilderberg; they act concurrently in accordance with the interests of Wall Street; they meet behind closed doors; they are on the same wave length; they are Democrats and Republicans.
While they may disagree on some issues, they are firmly committed to the Washington-Wall Street Consensus. They are utterly ruthless in their management of economic and financial processes. Their actions are profit driven. Outside of their narrow interest in the "efficiency" of "markets", they have little concern for "living human beings". How are people's lives affected by the deadly gamut of macro-economic and financial reforms, which is spearheading entire sectors of economic activity into bankruptcy.
The economic reasoning underlying neoliberal economic discourse is often cynical and contemptuous. In this regard, Lawrence Summers' economic discourse stands out. He is known among environmentalists for having proposed the dumping of toxic waste in Third World countries, because people in poor countries have shorter lives and the costs of labor are abysmally low, which essentially means that the market value of people in the Third World is much lower. According to Summers, this makes it far more "cost effective" to export toxic materials to impoverished countries. A controversial 1991 World Bank memo signed by of Chief Economist Larry Summers reads as follows (excerpts, emphasis added):
DATE: December 12, 1991 TO: Distribution FR: Lawrence H. Summers Subject: GEP
"'Dirty' Industries: Just between you and me, shouldn't the World Bank be encouraging MORE migration of the dirty industries to the Less Developed Countries? I can think of three reasons:
1) The measurements of the costs of health impairing pollution depends on the foregone earnings from increased morbidity and mortality.... From this point of view a given amount of health impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages. I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.
2) The costs of pollution are likely to be non-linear as the initial increments of pollution probably have very low cost. I've always thought that under-populated countries in Africa are vastly UNDER-polluted, their air quality is probably vastly inefficiently low compared to Los Angeles or Mexico City. Only the lamentable facts that so much pollution is generated by non-tradable industries (transport, electrical generation) and that the unit transport costs of solid waste are so high prevent world welfare enhancing trade in air pollution and waste.
3) The demand for a clean environment for aesthetic and health reasons is likely to have very high income elasticity. [the demand increases when income levels increase]. The concern over an agent that causes a one in a million change in the odds of prostrate cancer is obviously going to be much higher in a country where people survive to get prostrate cancer than in a country where under 5 mortality is is 200 per thousand.... "
MORE...
Summers stance on the export of pollution to developing countries had a marked impact on US environmental policy:
In 1994, "virtually every country in the world broke with Mr. Summers' Harvard-trained "economic logic" ruminations about dumping rich countries' poisons on their poorer neighbors, and agreed to ban the export of hazardous wastes from OECD to non-OECD [developing] countries under the Basel Convention. Five years later, the United States is one of the few countries that has yet to ratify the Basel Convention or the Basel Convention's Ban Amendment on the export of hazardous wastes from OECD to non-OECD countries. (Jim Valette, Larry Summers' War Against the Earth, Counterpunch, undated)
The 1997 Asian Crisis: Dress Rehearsal for Things to Come
In the course of 1997, currency speculation instrumented by major financial institutions directed against Thailand, Indonesia and South Korea was conducive to the collapse of national currencies and the transfer of billions of dollars of central bank reserves into private financial hands. Several observers pointed to the deliberate manipulation of equity and currency markets by investment banks and brokerage firms.
While the Asian bailout agreements were formally negotiated with the IMF, the major Wall Street commercial banks (including Chase, Bank of America, Citigroup and J. P. Morgan) as well as the "big five" merchant banks (Goldman Sachs, Lehman Brothers, Morgan Stanley and Salomon Smith Barney) were "consulted" on the clauses to be included in the Asian bail-out agreements.
The US Treasury in liaison with Wall Street and the Bretton Woods institutions played a central role in negotiating the bailout agreements. Both Larry Summers and Timothy Geithner, were actively involved on behalf of the US Treasury in the 1997 bailout of South Korea:
[In 1997] "Messrs. Summers and Geithner worked to persuade Mr. Rubin to support financial aid to South Korea. Mr. Rubin was wary of such a move, worrying that providing money to a country in dire straits might be a losing proposition..." (WSJ, November 8, 2008)
What happened in Korea under advice from Deputy Treasury Secretary Summers et al, had nothing to do with "financial aid".
The country was literally ransacked. Undersecretary of the Treasury David Lipton was sent to Seoul in early December 1997. Secret negotiations were initiated. Washington had demanded the firing of the Korean Finance Minister and the unconditional acceptance of the IMF "bailout".
A new finance minister, who happened to be former IMF and World Bank official, was appointed and immediately rushed off to Washington for "consultations" with his former IMF colleague Deputy Managing Director Stanley Fischer.
"The Korean Legislature had met in emergency sessions on December 23. The final decision concerning the 57 billion dollar deal took place the following day, on Christmas Eve December 24th, after office hours in New York. Wall Street’s top financiers, from Chase Manhattan, Bank of America, Citicorp and J. P. Morgan had been called in for a meeting at the Federal Reserve Bank of New York. Also at the Christmas Eve venue, were representatives of the "big five" New York merchant banks including Goldman Sachs, Lehman Brothers, Morgan Stanley and Salomon Smith Barney. And at midnight on Christmas Eve, upon receiving the green light from the banks, the IMF was allowed "to rush 10 billion dollars to Seoul to meet the avalanche of maturing short-term debts".
The coffers of Korea’s central Bank had been ransacked. Creditors and speculators were anxiously waiting to collect the loot. The same institutions which had earlier speculated against the Korean Won were cashing in on the IMF bailout money. It was a scam. (See Michel Chossudovsky, The Recolonization of Korea, subsequently published as a chapter in The Globalization of Poverty and the New World Order, Global Research, Montreal, 2003.)
"Strong economic medicine" is the prescription of the Washington Consensus. "Short term pain for long term gain" was the motto at the World Bank during Lawrence Summers term of as World Bank Chief Economist. (See IMF, World Bank Reforms Leave Poor Behind, Bank Economist Finds, Bloomberg, November 7, 2000)
What we are dealing with is an entire " old boys network" of officials and advisers at the Treasury, the Federal Reserve, the IMF, World Bank, the Washington Think Tanks, who are in permanent liaison with leading financiers on Wall Street.
Whoever is chosen by Obama's Transition team will belong to the Washington Consensus.
The 1999 Financial Services Modernization Act
What happened in October 1999 is crucial.
In the wake of lengthy negotiations behind closed doors, in the Wall Street boardrooms, in which Larry Summers played a central role, the regulatory restraints on Wall Street’s powerful banking conglomerates were revoked "with a stroke of the pen".
Larry Summers worked closely with Senator Phil Gramm (1985-2002),chairman of the Senate Banking committee, who was the legislative architect of the the Gramm-Leach-Bliley Financial Services Modernization Act, signed into law on November 12, 1999. (For Complete text click US Congress: Pub.L. 106-102). As Texas Senator, Phil Gramm was closely associated with Enron.
In December 2000 at the very end of the Clinton mandate, Gramm introduced a second piece of legislation, the so-called Gramm-Lugar Commodity Futures Modernization Act, which paved the way for the speculative onslaught in primary commodities including oil and food staples.
"The act, he declared, would ensure that neither the SEC nor the Commodity Futures Trading Commission (CFTC) got into the business of regulating newfangled financial products called swaps—and would thus "protect financial institutions from over-regulation" and "position our financial services industries to be world leaders into the new century." (See David Corn, Foreclosure Phil, Mother Jones, July August 2008)
Phil Gramm was McCain's first choice for Secretary of the Treasury.
Under the FSMA new rules – ratified by the US Senate in October 1999 and approved by President Clinton – commercial banks, brokerage firms, hedge funds, institutional investors, pension funds and insurance companies could freely invest in each others businesses as well as fully integrate their financial operations.
A "global financial supermarket" had been created, setting the stage for a massive concentration of financial power. One of the key figures behind this project was Secretary of the Treasury Larry Summers, in liaison with David Rockefeller. Summers described the FSMA as "the legislative foundation of the financial system of the 21th century". That legislative foundation is among the main causes of the 2008 financial meltdown.
Financial Disarmament
There can be no meaningful solution to the crisis, unless there is a major reform in the financial architecture, implying inter-alia the freezing of speculative trade and the "disarming of financial markets". The project of disarming financial markets was first proposed by John Maynard Keynes in the 1940s as a means to the establishment of a multipolar international monetary system. (See J.M. Keynes, Activities 1940-1944, Shaping the Post-War World: The Clearing Union, The Collected Writings of John Maynard Keynes, Royal Economic Society, Macmillan and Cambridge University Press, Vol. XXV, London 1980, p. 57).
Main Street versus Wall Street
Where are Obama's "Main Street appointees"? Namely individuals who respond to the interest of people across America. There are no labor or community leaders on Obama's list for key positions.
The President-elect is appointing the architects of financial deregulation.
Meaningful financial reform cannot be adopted by officials appointed by Wall Street and who act on behalf of Wall Street.
Those who set the financial system ablaze in 1999, have been called back to turn out the fire.
The proposed "solution" to the crisis under the "bailout" is the cause of further economic collapse.
There are no policy solutions on the horizon.
The banking conglomerates call the shots. They decide on the composition of the Obama Cabinet. They also decide on the agenda of the Washington Financial Summit (November 15, 2008) which is slated to lay the groundwork for the establishment of a new "global financial architecture".
The Wall Street blueprint has already been discussed behind closed doors: the hidden agenda is to establish a unipolar international monetary system, dominated by US financial power, which in turn would be protected and secured by US military superiority.
Neo-liberal with a "Human Face"
There is no indication that Obama will break his ties to his Wall Street sponsors, who largely funded his election campaign.
Goldman Sachs, J. P. Morgan Chase, Citigroup, Bill Gates' Microsoft are among his main campaign contributors.
Warren Buffett, among the the world's richest individuals, not only supported Barak Obama's election campaign, he is a member of his transition team, which plays a key role deciding the composition of Obama's cabinet.
Unless there is a major upheaval in the system of political appointments to key positions, an alternative Obama economic agenda geared towards poverty alleviation and employment creation is highly unlikely.
What we are witnessing is continuity.
Obama provides a " human face" to the status quo. This human face serves to mislead Americans on the nature of the economic and political process.
The neoliberal economic reforms remain intact.
The substance of these reforms including the "bailout" of America's largest financial institutions ultimately destroys the real economy, while spearheading entire areas of manufacturing and the services economy into bankruptcy.
NOTE:
President-elect Barack Obama should strongly advocate for repeal of the 1999 Gramm-Leach-Bliley Financial Services Modernization Act and the Gramm-Lugar Commodity Futures Modernization Act. He should consider re-instituting a Glass-Steagall type of legislation designed to re-regulate the Banking Industry. Without these measures, it will continue to be business as usual with Wall Street high finance in control of the US economy including Main Street.
--Dr. J. P. Hubert
By Michel Chossudovsky
Global Research, November 9, 2008
Most Serious Economic Crisis in Modern History
The October 2008 financial meltdown is not the result of a cyclical economic phenomenon. It is the deliberate result of US government policy instrumented through the Treasury and the US Federal Reserve Board.
This is the most serious economic crisis in World history.
The "bailout" proposed by the US Treasury does not constitute a "solution" to the crisis. In fact quite the opposite: it is the cause of further collapse. It triggers an unprecedented concentration of wealth, which in turn contributes to widening economic and social inequalities both within and between nations.
The levels of indebtedness have skyrocketed. Industrial corporations are driven into bankruptcy, taken over by the global financial institutions. Credit, namely the supply of loanable funds, which constitutes the lifeline of production and investment, is controlled by a handful of financial conglomerates.
With the "bailout", the public debt has spiraled. America is the most indebted country on earth. Prior to the "bailout", the US public debt was of the order of 10 trillion dollars. This US dollar denominated debt is composed of outstanding treasury bills and government bonds held by individuals, foreign governments, corporations and financial institutions.
"The Bailout": The US Administration is Financing its Own Indebtedness
Ironically, the Wall Street banks --which are the recipients of the bailout money-- are also the brokers and underwriters of the US public debt. Although the banks hold only a portion of the public debt, they transact and trade in US dollar denominated public debt instruments Worldwide.
In a bitter twist, the banks are the recipients of a 700+ billion dollar handout and at the same time they act as creditors of the US government.
We are dealing with an absurd circular relationship: To finance the bailout, Washington must borrow from the banks, which are the recipients of the bailout.
The US administration is financing its own indebtedness.
Federal, State and municipal governments are increasingly in a straight-jacket, under the tight control of the global financial conglomerates. Increasingly, the creditors call the shots on government reform.
The bailout is conducive to the consolidation and a centralization of banking power, which in turn backlashes on real economic activity, leading to a string of bankruptcies and mass unemployment.
Will an Obama Administration Reverse the Tide?
The financial crisis is the outcome of a deregulated financial architecture.
Obama has stated unequivocally his resolve to address the policy failures of the Bush administration and "democratize" the US financial system. President-Elect Barack Obama says that he is committed to reversing the tide:
"Let us remember that if this financial crisis taught us anything, it’s that we cannot have a thriving Wall Street while Main Street suffers. In this country, we rise or fall as one nation, as one people." (President-elect Barack Obama, November 4, 2008, emphasis added)
The Democrats casually blame the Bush administration for the October financial meltdown.
Obama says that he will be introducing an entirely different policy agenda which responds to the interests of Main Street:
"Tomorrow, you can turn the page on policies that put the greed and irresponsibility of Wall Street before the hard work and sacrifice of men and women all across Main Street. Tomorrow you can choose policies that invest in our middle class and create new jobs and grow this economy so that everybody has a chance to succeed, from the CEO to the secretary and the janitor, from the factory owner to the men and women who work on the factory floor.( Barack Obama, election campaign, November 3, 2008, emphasis added)
Is Obama committed to "taming Wall Street" and "disarming financial markets"?
Ironically, it was under the Clinton administration that these policies of "greed and irresponsibility" were adopted.
The 1999 Financial Services Modernization Act (FSMA) was conducive to the the repeal of the Glass-Steagall Act of 1933. A pillar of President Roosevelt’s "New Deal", the Glass-Steagall Act was put in place in response to the climate of corruption, financial manipulation and "insider trading" which resulted in more than 5,000 bank failures in the years following the 1929 Wall Street crash.
Under the 1999 Financial Services Modernization Act, effective control over the entire US financial services industry (including insurance companies, pension funds, securities companies, etc.) had been transferred to a handful of financial conglomerates and their associated hedge funds.
The Engineers of Financial Disaster
Who are the architects of this debacle?
In a bitter irony, the engineers of financial disaster are now being considered by President-Elect Barack Obama's Transition Team for the position Treasury Secretary:
Lawrence Summers played a key role in lobbying Congress for the repeal of the Glass Steagall Act. His timely appointment by President Clinton in 1999 as Treasury Secretary spearheaded the adoption of the Financial Services Modernization Act in November 1999. Upon completing his mandate at the helm of the US Treasury, he became president of Harvard University (2001- 2006).
Paul Volker was chairman of the Federal Reserve Board in the l980s during the Reagan era. He played a central role in implementing the first stage of financial deregulation, which was conducive to mass bankruptcies, mergers and acquisitions, leading up to the 1987 financial crisis.
Timothy Geithner is CEO of the Federal Reserve Bank of New York, which is the most powerful private financial institution in America. He was also a former Clinton administration Treasury official. He has worked for Kissinger Associates and has also held a senior position at the IMF. The FRBNY plays a behind the scenes role in shaping financial policy. Geithner acts on behalf of powerful financiers, who are behind the FRBNY. He is also a member of the Council on Foreign Relations (CFR)
Jon Corzine is currently governor of New Jersey, former CEO of Goldman Sachs.
At the time of writing, Obama's favorite is Larry Summers, front-runner for the position of Treasury Secretary.
Harvard University Economics Professor Lawrence Summers served as Chief Economist for the World Bank (1991–1993). He contributed to shaping the macro-economic reforms imposed on numerous indebted developing countries. The social and economic impact of these reforms under the IMF-World Bank sponsored structural adjustment program (SAP) were devastating, resulting in mass poverty.
Larry Summer's stint at the World Bank coincided with the collapse of the Soviet Union and the imposition of the IMF-World Bank's deadly " economic medicine" on Eastern Europe, the former Soviet republics and the Balkans.
In 1993, Summers moved to the US Treasury. He initially held the position of Undersecretary of the Treasury for international affairs and later Deputy Secretary. In liaison with his former colleagues at the IMF and the World Bank, he played a key role in crafting the economic "shock treatment" reform packages imposed at the height of the 1997 Asian crisis on South Korea, Thailand and Indonesia.
The bailout agreements negotiated with these three countries were coordinated through Summers office at the Treasury in liaison with the Federal Reserve Bank of New York and the Washington based Bretton-Woods institutions. Summers worked closely with IMF Deputy Managing Director Stanley Fischer, who was later appointed Governor of the Central Bank of Israel.
Larry Summers became Treasury Secretary in July 1999. He is a protégé of David Rockefeller. He was among the main architects of the infamous Financial Services Modernization Act, which provided legitimacy to inside trading and outright financial manipulation.
"Putting the Fox in Charge of the Chicken Coop"
Summers is currently a Consultant to Goldman Sachs and managing director of a Hedge fund, the D.E. Shaw Group, As former Treasury Secretary and his contacts on Wall Street, Summers had valuable inside information on the movement of financial markets. Under the helm of Larry Summers and as a direct result of the financial meltdown, the D. E. Shaw Group made record profits. At the end of October 2008, at the height of the financial meltdown, the Shaw Group announced $7 billion in revenue, a 22 percent increase over the previous year, "with nearly three times more cash on hand than a year ago" (theadvocate.com, 31 October 2008).
Putting a Hedge Fund manager (with links to the Wall Street financial establishment) in charge of the Treasury is tantamount to putting the fox in charge of the chicken coop.
The Washington Consensus
Summers, Geithner, Corzine, Volker, Fischer, Phil Gramm, Bernanke, Hank Paulson, Rubin, not to mention Alan Greenspan, al al. are buddies, they play golf together; they have links to the Council on Foreign Relations and the Bilderberg; they act concurrently in accordance with the interests of Wall Street; they meet behind closed doors; they are on the same wave length; they are Democrats and Republicans.
While they may disagree on some issues, they are firmly committed to the Washington-Wall Street Consensus. They are utterly ruthless in their management of economic and financial processes. Their actions are profit driven. Outside of their narrow interest in the "efficiency" of "markets", they have little concern for "living human beings". How are people's lives affected by the deadly gamut of macro-economic and financial reforms, which is spearheading entire sectors of economic activity into bankruptcy.
The economic reasoning underlying neoliberal economic discourse is often cynical and contemptuous. In this regard, Lawrence Summers' economic discourse stands out. He is known among environmentalists for having proposed the dumping of toxic waste in Third World countries, because people in poor countries have shorter lives and the costs of labor are abysmally low, which essentially means that the market value of people in the Third World is much lower. According to Summers, this makes it far more "cost effective" to export toxic materials to impoverished countries. A controversial 1991 World Bank memo signed by of Chief Economist Larry Summers reads as follows (excerpts, emphasis added):
DATE: December 12, 1991 TO: Distribution FR: Lawrence H. Summers Subject: GEP
"'Dirty' Industries: Just between you and me, shouldn't the World Bank be encouraging MORE migration of the dirty industries to the Less Developed Countries? I can think of three reasons:
1) The measurements of the costs of health impairing pollution depends on the foregone earnings from increased morbidity and mortality.... From this point of view a given amount of health impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages. I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.
2) The costs of pollution are likely to be non-linear as the initial increments of pollution probably have very low cost. I've always thought that under-populated countries in Africa are vastly UNDER-polluted, their air quality is probably vastly inefficiently low compared to Los Angeles or Mexico City. Only the lamentable facts that so much pollution is generated by non-tradable industries (transport, electrical generation) and that the unit transport costs of solid waste are so high prevent world welfare enhancing trade in air pollution and waste.
3) The demand for a clean environment for aesthetic and health reasons is likely to have very high income elasticity. [the demand increases when income levels increase]. The concern over an agent that causes a one in a million change in the odds of prostrate cancer is obviously going to be much higher in a country where people survive to get prostrate cancer than in a country where under 5 mortality is is 200 per thousand.... "
MORE...
Summers stance on the export of pollution to developing countries had a marked impact on US environmental policy:
In 1994, "virtually every country in the world broke with Mr. Summers' Harvard-trained "economic logic" ruminations about dumping rich countries' poisons on their poorer neighbors, and agreed to ban the export of hazardous wastes from OECD to non-OECD [developing] countries under the Basel Convention. Five years later, the United States is one of the few countries that has yet to ratify the Basel Convention or the Basel Convention's Ban Amendment on the export of hazardous wastes from OECD to non-OECD countries. (Jim Valette, Larry Summers' War Against the Earth, Counterpunch, undated)
The 1997 Asian Crisis: Dress Rehearsal for Things to Come
In the course of 1997, currency speculation instrumented by major financial institutions directed against Thailand, Indonesia and South Korea was conducive to the collapse of national currencies and the transfer of billions of dollars of central bank reserves into private financial hands. Several observers pointed to the deliberate manipulation of equity and currency markets by investment banks and brokerage firms.
While the Asian bailout agreements were formally negotiated with the IMF, the major Wall Street commercial banks (including Chase, Bank of America, Citigroup and J. P. Morgan) as well as the "big five" merchant banks (Goldman Sachs, Lehman Brothers, Morgan Stanley and Salomon Smith Barney) were "consulted" on the clauses to be included in the Asian bail-out agreements.
The US Treasury in liaison with Wall Street and the Bretton Woods institutions played a central role in negotiating the bailout agreements. Both Larry Summers and Timothy Geithner, were actively involved on behalf of the US Treasury in the 1997 bailout of South Korea:
[In 1997] "Messrs. Summers and Geithner worked to persuade Mr. Rubin to support financial aid to South Korea. Mr. Rubin was wary of such a move, worrying that providing money to a country in dire straits might be a losing proposition..." (WSJ, November 8, 2008)
What happened in Korea under advice from Deputy Treasury Secretary Summers et al, had nothing to do with "financial aid".
The country was literally ransacked. Undersecretary of the Treasury David Lipton was sent to Seoul in early December 1997. Secret negotiations were initiated. Washington had demanded the firing of the Korean Finance Minister and the unconditional acceptance of the IMF "bailout".
A new finance minister, who happened to be former IMF and World Bank official, was appointed and immediately rushed off to Washington for "consultations" with his former IMF colleague Deputy Managing Director Stanley Fischer.
"The Korean Legislature had met in emergency sessions on December 23. The final decision concerning the 57 billion dollar deal took place the following day, on Christmas Eve December 24th, after office hours in New York. Wall Street’s top financiers, from Chase Manhattan, Bank of America, Citicorp and J. P. Morgan had been called in for a meeting at the Federal Reserve Bank of New York. Also at the Christmas Eve venue, were representatives of the "big five" New York merchant banks including Goldman Sachs, Lehman Brothers, Morgan Stanley and Salomon Smith Barney. And at midnight on Christmas Eve, upon receiving the green light from the banks, the IMF was allowed "to rush 10 billion dollars to Seoul to meet the avalanche of maturing short-term debts".
The coffers of Korea’s central Bank had been ransacked. Creditors and speculators were anxiously waiting to collect the loot. The same institutions which had earlier speculated against the Korean Won were cashing in on the IMF bailout money. It was a scam. (See Michel Chossudovsky, The Recolonization of Korea, subsequently published as a chapter in The Globalization of Poverty and the New World Order, Global Research, Montreal, 2003.)
"Strong economic medicine" is the prescription of the Washington Consensus. "Short term pain for long term gain" was the motto at the World Bank during Lawrence Summers term of as World Bank Chief Economist. (See IMF, World Bank Reforms Leave Poor Behind, Bank Economist Finds, Bloomberg, November 7, 2000)
What we are dealing with is an entire " old boys network" of officials and advisers at the Treasury, the Federal Reserve, the IMF, World Bank, the Washington Think Tanks, who are in permanent liaison with leading financiers on Wall Street.
Whoever is chosen by Obama's Transition team will belong to the Washington Consensus.
The 1999 Financial Services Modernization Act
What happened in October 1999 is crucial.
In the wake of lengthy negotiations behind closed doors, in the Wall Street boardrooms, in which Larry Summers played a central role, the regulatory restraints on Wall Street’s powerful banking conglomerates were revoked "with a stroke of the pen".
Larry Summers worked closely with Senator Phil Gramm (1985-2002),chairman of the Senate Banking committee, who was the legislative architect of the the Gramm-Leach-Bliley Financial Services Modernization Act, signed into law on November 12, 1999. (For Complete text click US Congress: Pub.L. 106-102). As Texas Senator, Phil Gramm was closely associated with Enron.
In December 2000 at the very end of the Clinton mandate, Gramm introduced a second piece of legislation, the so-called Gramm-Lugar Commodity Futures Modernization Act, which paved the way for the speculative onslaught in primary commodities including oil and food staples.
"The act, he declared, would ensure that neither the SEC nor the Commodity Futures Trading Commission (CFTC) got into the business of regulating newfangled financial products called swaps—and would thus "protect financial institutions from over-regulation" and "position our financial services industries to be world leaders into the new century." (See David Corn, Foreclosure Phil, Mother Jones, July August 2008)
Phil Gramm was McCain's first choice for Secretary of the Treasury.
Under the FSMA new rules – ratified by the US Senate in October 1999 and approved by President Clinton – commercial banks, brokerage firms, hedge funds, institutional investors, pension funds and insurance companies could freely invest in each others businesses as well as fully integrate their financial operations.
A "global financial supermarket" had been created, setting the stage for a massive concentration of financial power. One of the key figures behind this project was Secretary of the Treasury Larry Summers, in liaison with David Rockefeller. Summers described the FSMA as "the legislative foundation of the financial system of the 21th century". That legislative foundation is among the main causes of the 2008 financial meltdown.
Financial Disarmament
There can be no meaningful solution to the crisis, unless there is a major reform in the financial architecture, implying inter-alia the freezing of speculative trade and the "disarming of financial markets". The project of disarming financial markets was first proposed by John Maynard Keynes in the 1940s as a means to the establishment of a multipolar international monetary system. (See J.M. Keynes, Activities 1940-1944, Shaping the Post-War World: The Clearing Union, The Collected Writings of John Maynard Keynes, Royal Economic Society, Macmillan and Cambridge University Press, Vol. XXV, London 1980, p. 57).
Main Street versus Wall Street
Where are Obama's "Main Street appointees"? Namely individuals who respond to the interest of people across America. There are no labor or community leaders on Obama's list for key positions.
The President-elect is appointing the architects of financial deregulation.
Meaningful financial reform cannot be adopted by officials appointed by Wall Street and who act on behalf of Wall Street.
Those who set the financial system ablaze in 1999, have been called back to turn out the fire.
The proposed "solution" to the crisis under the "bailout" is the cause of further economic collapse.
There are no policy solutions on the horizon.
The banking conglomerates call the shots. They decide on the composition of the Obama Cabinet. They also decide on the agenda of the Washington Financial Summit (November 15, 2008) which is slated to lay the groundwork for the establishment of a new "global financial architecture".
The Wall Street blueprint has already been discussed behind closed doors: the hidden agenda is to establish a unipolar international monetary system, dominated by US financial power, which in turn would be protected and secured by US military superiority.
Neo-liberal with a "Human Face"
There is no indication that Obama will break his ties to his Wall Street sponsors, who largely funded his election campaign.
Goldman Sachs, J. P. Morgan Chase, Citigroup, Bill Gates' Microsoft are among his main campaign contributors.
Warren Buffett, among the the world's richest individuals, not only supported Barak Obama's election campaign, he is a member of his transition team, which plays a key role deciding the composition of Obama's cabinet.
Unless there is a major upheaval in the system of political appointments to key positions, an alternative Obama economic agenda geared towards poverty alleviation and employment creation is highly unlikely.
What we are witnessing is continuity.
Obama provides a " human face" to the status quo. This human face serves to mislead Americans on the nature of the economic and political process.
The neoliberal economic reforms remain intact.
The substance of these reforms including the "bailout" of America's largest financial institutions ultimately destroys the real economy, while spearheading entire areas of manufacturing and the services economy into bankruptcy.
NOTE:
President-elect Barack Obama should strongly advocate for repeal of the 1999 Gramm-Leach-Bliley Financial Services Modernization Act and the Gramm-Lugar Commodity Futures Modernization Act. He should consider re-instituting a Glass-Steagall type of legislation designed to re-regulate the Banking Industry. Without these measures, it will continue to be business as usual with Wall Street high finance in control of the US economy including Main Street.
--Dr. J. P. Hubert
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