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.
Sunday, July 18, 2010
Gulf Oil Update: Day 90
BP: Well cap may bottle oil until permanent plug
By COLLEEN LONG and HARRY R. WEBER,
Associated Press
NEW ORLEANS – BP hopes to keep using its giant stopper to block oil from reaching the Gulf of Mexico until they plug the blown out well permanently, the company said Sunday.
"No one associated with this whole activity ... wants to see any more oil flow into the Gulf of Mexico," said Doug Suttles, BP's chief operating officer. "Right now we don't have a target to return the well to flow."
Retired U.S. Coast Guard Adm. Thad Allen outlined a different plan on Saturday, saying that after the test was complete, the cap would be hooked up through nearly a mile of pipes stretching to ships on the surface that will collect the oil.
But that would mean oil would have to be released back into the Gulf for three days to release pressure from the well, Suttles said. The oil giant hopes to instead keep the oil shut in until its permanent measure is completed, although Suttles said BP was taking it day by day.
It wasn't immediately clear if the plan had changed, or if BP and the government disagreed about the next move. Allen will make the ultimate decision.
Both Allen and BP have said they don't know how long the trial run — initially set to end Saturday — will continue. Allen has extended it to Sunday afternoon, and could extend it again.
Unimpeded, the well spewed as much as 2.5 million gallons a day, according to the government's worst-case estimates. It's possible the oil has been depleted, and that's why pressure readings from the cap have been lower than anticipated, BP has said.
Scientists still aren't sure whether the shut-in is causing oil to leak into the bedrock surrounding the well, which could make the seabed unstable. That's why pumping the oil up to four ships on the surface and containing it there may be a safer option. (Editor's Comment: To date, there has been no data publicized which would prove that oil is leaking into the bedrock below the level of the sea-bed. Either it does not exist and the well casing is intact, or it has been disrupted--in which case BP and the Obama administration are unwilling to release the information)
But to do that, millions of gallons of oil could spew into the water when the cap is initially reopened, an image both BP and the federal government would like to avoid.
BP is drilling two relief wells, one of them as a backup. The company said work on the first one was far enough along that officials expect to reach the broken well's casing, or pipes, deep underground by late this month. Then the job of jamming it with mud and cement could take "a number of days through a few weeks."
The cap, which on Thursday stopped the crude for the first time since the April 20 explosion unleashed the spill, lets BP shut in the oil, which would be important if a hurricane were to hit the Gulf and force ships to leave the area.
Pressure in the well cap continues to rise, and scientists are still monitoring for any signs of a leak, but the news still seems to be good, Suttles said. The oil giant is hoping to keep evaluating even after the extended monitoring period it was given by the government, which expires Sunday afternoon.
"We're not seeing any problems at this point with the shut-in," Suttles said at a Sunday morning briefing.
It will take months, or possibly years for the Gulf to recover. But there were signs that people were trying to get life — or at least a small part of it — back to normal.
The public beach at Gulf Shores, Ala., had its busiest day in weeks on Saturday despite oil-stained sand and a dark line of tar balls left by high tide.
Darryl Allen of Fairhope, Ala., and Pat Carrasco of Baton Rouge, La., came to the beach to throw a Frisbee just like they've been doing for the past 30 years. With oil on people's minds more than the weather, Allen asked what's become a common question since the well integrity test began: "How's the pressure? I hope it's going up," he said. "You don't want to be too optimistic after all that's happened."
People also were fishing again, off piers and in boats, after most of the recreational waters in Louisiana were reopened late this week. More than a third of federal waters are still closed and off-limits to commercial fishermen.
"I love to fish," said Brittany Lawson, hanging her line off a pier beside the Grand Isle Bridge. "I love to come out here."
And even though it has been only days since the oil was turned off, the naked eye could spot improvements on the water. The crude appeared to be dissipating quickly on the surface of the Gulf around the Deepwater Horizon site.
Members of a Coast Guard crew that flew over the wellhead Saturday said far less oil was visible than a day earlier. Only a colorful sheen and a few long streams of rust-colored, weathered oil were apparent in an area covered weeks earlier by huge patches of black crude. Somewhere between 94 million and 184 million gallons have spilled into the Gulf, according to government estimates.
Editor's NOTE:
Apparently retired Adm. Thad Allen and the Obama administration would like the well uncapped again so that they can measure the flow in order to more accurately assess fines against BP.
Fines are allegedly based on the number of gallons spilled. BP would rather that the well remain capped as it is now in order to decrease the potential dollars owed. The people of the Gulf would presumably agree--despite their desire to see BP pay the appropropriate financial penalties.
--Dr. J. P. Hubert
____________
By COLLEEN LONG and HARRY R. WEBER,
Associated Press
NEW ORLEANS – BP hopes to keep using its giant stopper to block oil from reaching the Gulf of Mexico until they plug the blown out well permanently, the company said Sunday.
"No one associated with this whole activity ... wants to see any more oil flow into the Gulf of Mexico," said Doug Suttles, BP's chief operating officer. "Right now we don't have a target to return the well to flow."
Retired U.S. Coast Guard Adm. Thad Allen outlined a different plan on Saturday, saying that after the test was complete, the cap would be hooked up through nearly a mile of pipes stretching to ships on the surface that will collect the oil.
But that would mean oil would have to be released back into the Gulf for three days to release pressure from the well, Suttles said. The oil giant hopes to instead keep the oil shut in until its permanent measure is completed, although Suttles said BP was taking it day by day.
It wasn't immediately clear if the plan had changed, or if BP and the government disagreed about the next move. Allen will make the ultimate decision.
Both Allen and BP have said they don't know how long the trial run — initially set to end Saturday — will continue. Allen has extended it to Sunday afternoon, and could extend it again.
Unimpeded, the well spewed as much as 2.5 million gallons a day, according to the government's worst-case estimates. It's possible the oil has been depleted, and that's why pressure readings from the cap have been lower than anticipated, BP has said.
Scientists still aren't sure whether the shut-in is causing oil to leak into the bedrock surrounding the well, which could make the seabed unstable. That's why pumping the oil up to four ships on the surface and containing it there may be a safer option. (Editor's Comment: To date, there has been no data publicized which would prove that oil is leaking into the bedrock below the level of the sea-bed. Either it does not exist and the well casing is intact, or it has been disrupted--in which case BP and the Obama administration are unwilling to release the information)
But to do that, millions of gallons of oil could spew into the water when the cap is initially reopened, an image both BP and the federal government would like to avoid.
BP is drilling two relief wells, one of them as a backup. The company said work on the first one was far enough along that officials expect to reach the broken well's casing, or pipes, deep underground by late this month. Then the job of jamming it with mud and cement could take "a number of days through a few weeks."
The cap, which on Thursday stopped the crude for the first time since the April 20 explosion unleashed the spill, lets BP shut in the oil, which would be important if a hurricane were to hit the Gulf and force ships to leave the area.
Pressure in the well cap continues to rise, and scientists are still monitoring for any signs of a leak, but the news still seems to be good, Suttles said. The oil giant is hoping to keep evaluating even after the extended monitoring period it was given by the government, which expires Sunday afternoon.
"We're not seeing any problems at this point with the shut-in," Suttles said at a Sunday morning briefing.
It will take months, or possibly years for the Gulf to recover. But there were signs that people were trying to get life — or at least a small part of it — back to normal.
The public beach at Gulf Shores, Ala., had its busiest day in weeks on Saturday despite oil-stained sand and a dark line of tar balls left by high tide.
Darryl Allen of Fairhope, Ala., and Pat Carrasco of Baton Rouge, La., came to the beach to throw a Frisbee just like they've been doing for the past 30 years. With oil on people's minds more than the weather, Allen asked what's become a common question since the well integrity test began: "How's the pressure? I hope it's going up," he said. "You don't want to be too optimistic after all that's happened."
People also were fishing again, off piers and in boats, after most of the recreational waters in Louisiana were reopened late this week. More than a third of federal waters are still closed and off-limits to commercial fishermen.
"I love to fish," said Brittany Lawson, hanging her line off a pier beside the Grand Isle Bridge. "I love to come out here."
And even though it has been only days since the oil was turned off, the naked eye could spot improvements on the water. The crude appeared to be dissipating quickly on the surface of the Gulf around the Deepwater Horizon site.
Members of a Coast Guard crew that flew over the wellhead Saturday said far less oil was visible than a day earlier. Only a colorful sheen and a few long streams of rust-colored, weathered oil were apparent in an area covered weeks earlier by huge patches of black crude. Somewhere between 94 million and 184 million gallons have spilled into the Gulf, according to government estimates.
Editor's NOTE:
Apparently retired Adm. Thad Allen and the Obama administration would like the well uncapped again so that they can measure the flow in order to more accurately assess fines against BP.
Fines are allegedly based on the number of gallons spilled. BP would rather that the well remain capped as it is now in order to decrease the potential dollars owed. The people of the Gulf would presumably agree--despite their desire to see BP pay the appropropriate financial penalties.
--Dr. J. P. Hubert
____________
More Evidence of Zionist Lobby's Power: On With Creation of "Greater Israel"
They're All Grovelling and You Can Guess the Reason
By Robert Fisk
July 17, 2010 "The Independent" -- It is the season of grovelling.
Only a week after CNN's Octavia Nasr and the British ambassador to Beirut, Frances Guy, dared to suggest that Sayyed Hassan Fadlallah of Lebanon was a nice old chap rather than the super-terrorist the Americans have always claimed him to be, the grovelling began. First Ms Nasr, already fired by the grovelling CNN for her effrontery in calling Fadlallah a "giant", grovelled herself. Rather than tell the world what a cowardly outfit she had been working for, she announced that hers was "a simplistic comment and I'm sorry because it conveyed that I supported Fadlallah's life's work. That's not the case at all".
What is this garbage? Nasr never gave the impression that she supported "Fadlallah's life's work". She merely expressed her regret that the old boy was dead, adding - inaccurately - that he had been part of Hizbollah. I don't know what her pompous (and, of course, equally grovelling) "senior vice president" said to her when she was given her marching orders. But like victims of the Spanish Inquisition, Nasr actually ended up apologizing for sins she had never even been accused of. Then within hours, British ambassador Guy began her own self-flagellation, expressing her regrets that she may have offended anyone (and we all know what that means) by her "personal attempt to offer some reflections of a figure who, while controversial, was also highly influential in Lebanon's history and who offered spiritual guidance to many Muslims in need".
I loved the "controversial" bit - the usual "fuck you" word for anyone you want to praise without incurring the wrath of, well, you know who. The Foreign Office itself took down poor Ms Guy's blogapop on old Fadlallah, thus proving - as Arab journalists leapt to point out this week - that while Britain proclaims the virtues of democracy and the free press to the grovelling newspaper owners and grotty emirs of the Middle East, it is the first to grovel when anything might offend you know who.
For that was the collective sin of Misses Nasr and Guy. What they said might have made Israel's supporters angry. And that will never do. The reality is that CNN should have told Israel's lobbyists to get lost, and the Foreign Office - which was indeed upbraided by the Israeli foreign ministry - should have asked the Israeli government when it is going to stop thieving Arab land. But as my old mate Rami Khoury put it in the Jordanian press this week, "We in the Middle East are used to this sort of racist intellectual terrorism. American and British citizens who occasionally dare to speak accurately about the Middle East and its people are still learning about the full price of the truth when Israeli interests are in the room."
Which brings us, of course, to the Grovel of the Week, the unctuous, weak-willed, cringing figure of Barack "Change" Obama as he strode the White House lawn with Netanyahu himself. For here was the champion of the underdog, the "understanding" president who could fix the Middle East - finding it "harder that he thought", according to his spokesman - proving that mid-term elections are more important than all the injustice in the Middle East. It is more than a year now since Netanyahu responded in cabinet to Obama's first criticisms with the remark: "This guy doesn't get it, does he?" (The quote comes from an excellent Israeli source of mine.) Ever since, Netanyahu has been McChrystalling Obama on a near-weekly basis, and Obama has been alternatively hissing and purring, banning Netanyahu from photo calls, but then - as those elections draw nearer - rolling over and talking about how the brave Netanyahu, whose government has just destroyed some more Arab homes in East Jerusalem, is taking "risks for peace".
Needless to say, the only good guys in this story are the courageous Jewish Americans who oppose the thieves in Netanyahu's government and the racism of his foreign minister, the Ahmadinejad-like Avigdor Lieberman. And which Western newspaper was bold enough to point out that the house destruction in Jerusalem "effectively end(ed) an unofficial freeze of such internationally condemned demolitions"? The New York Times? The Washington Post? No, the Israeli newspaper Haaretz, of course. And anyone who thinks Haaretz is alone in condemning the illegal actions of the Israelis should read the excellent Jewish magazine Tikun in the US, which goes for Israel's Likud lobbyists - for they are Likudists - like a tiger. Their latest target was Neal Sher, the Likudist who used to be in the US Justice Department and who is trying to persuade La Clintone to ban Judge Goldstone from America (where he holds a university professorship) for accusing Israel of war crimes in Gaza. And whose government was it that also condemned Goldstone's report? Well, Obama's of course.
Looking back, the Obama grovelling started in that famous Cairo reach-out-to-the-Muslim-world speech, when he referred to the Palestinian "relocation" of 1948 (as if the Palestinian Arabs got up one morning on the birth of Israel and decided that they all wanted to go on holiday to Lebanon). But the moment the world should have got wise was when Obama accepted the Nobel Peace Prize. A man of greater dignity would have acknowledged the honor of such an award, but explained that his own unworthiness prevented him from accepting. But he did accept. He wanted the Nobel Prize. It was more important to accept it even though he did not deserve it. And now? Well, we've all been watching the little groveler this week. Middle East peace? Further colonization of Arab land? Crisis in southern Lebanon? The continued siege of Gaza? Forget it. Think of mid-term elections. Remember the fate of Nasr and Guy. And grovel.
____________
Tricky Bibi
Israel has had many rightist leaders since Menachem Begin promised "many Elon Morehs," but there has never been one like Netanyahu, who wants to do it by deceit.
By Gideon Levy
Haaretz.com
Published 03:14 15.07.10 Latest update 03:14 15.07.10
This video should have been banned for broadcast to minors. This video should have been shown in every home in Israel, then sent to Washington and Ramallah. Banned for viewing by children so as not to corrupt them, and distributed around the country and the world so that everyone will know who leads the government of Israel. Channel 10 presented: The real (and deceitful ) face of Binyamin Netanyahu. Broadcast on Friday night on "This Week with Miki Rosenthal," it was filmed secretly in 2001, during a visit by Citizen Netanyahu to the home of a bereaved family in the settlement of Ofra, and astoundingly, it has not created a stir.
The scene was both pathetic and outrageous. The last of Netanyahu's devoted followers, who believe he is the man who will bring peace, would have immediately changed their minds. Presidents Barack Obama and Shimon Peres, who continue to maintain that Netanyahu will bring peace, would be talking differently had they seen this secretly filmed video clip. Even the objection of Palestinian Authority President Mahmoud Abbas to conducting direct negotiations with the man from the video would be understandable. What is there to discuss with a huckster whose sole purpose is "to give 2 percent in order to prevent 100 percent," as his father told him, quoting his grandfather.
Israel has had many rightist leaders since Menachem Begin promised "many Elon Morehs," but there has never been one like Netanyahu, who wants to do it by deceit, to mock America, trick the Palestinians and lead us all astray. The man in the video betrays himself in his own words as a con artist, and now he is again prime minister of Israel. Don't try to claim that he has changed since then. Such a crooked way of thinking does not change over the years.
Forget the Bar-Ilan University speech, forget the virtual achievements in his last visit to the United States; this is the real Netanyahu. No more claims that the Palestinians are to blame for the failure of the Oslo Accords. Netanyahu exposed the naked truth to his hosts at Ofra: he destroyed the Oslo accords with his own hands and deeds, and he's even proud of it. After years in which we were told that the Palestinians are to blame, the truth has emerged from the horse's mouth.
And how did he do it? He recalled how he conditioned his signing of the 1997 Hebron agreement on American consent that there be no withdrawals from "specified military locations," and insisted he choose those same locations, such as the whole of the Jordan Valley, for example. "Why is that important? Because from that moment on I stopped the Oslo Accords," he boasts. The real Netanyahu also brags about his knowledge of America: "I know what America is. America is something that can be moved easily." For the White House's information.
He calls then-U.S. President Bill Clinton "extremely pro-Palestinian," and says the Palestinians want to throw us into the sea. With such retrograde beliefs, no one can convincingly argue that he wants an agreement.
These remarks are profoundly depressing. They bear out all of our fears and suspicions: that the government of Israel is led by a man who doesn't believe the Palestinians and doesn't believe in the chance of an agreement with them, who thinks that Washington is in his pocket and that he can pull the wool over its eyes. There's no point in talking about Netanyahu's impossible rightist coalition as an obstacle to progress. From now on, just say that Netanyahu doesn't want it.
What if Kadima joins the government and Yisrael Beiteinu leaves? Nothing will change. What if Danny Danon goes leftist and Tzipi Hotovely joins Peace Now? Netanyahu doesn't want it.
If he had said so honestly, as he did when he thought the camera in Ofra was turned off, then he could have been forgiven for his extreme positions. It's his right to think that way and get elected for it. The people will have gotten what they chose. But when Netanyahu hides his real positions under camouflage netting and entangles them in webs of deceit, he not only reduces the chances of reaching an agreement, he also damages Israel's political culture. Many people may want a right-wing, nationalist prime minister, but a prime minister who is a con artist? Is is too much to expect of Netanyahu that he speak to us precisely as he spoke in Ofra? Why do a handful of settlers deserve to know the truth, and not us? Tell us the truth, Netanyahu. Talk to us as if the cameras were off, just as you thought then, in 2001 in Ofra.
By Robert Fisk
July 17, 2010 "The Independent" -- It is the season of grovelling.
Only a week after CNN's Octavia Nasr and the British ambassador to Beirut, Frances Guy, dared to suggest that Sayyed Hassan Fadlallah of Lebanon was a nice old chap rather than the super-terrorist the Americans have always claimed him to be, the grovelling began. First Ms Nasr, already fired by the grovelling CNN for her effrontery in calling Fadlallah a "giant", grovelled herself. Rather than tell the world what a cowardly outfit she had been working for, she announced that hers was "a simplistic comment and I'm sorry because it conveyed that I supported Fadlallah's life's work. That's not the case at all".
What is this garbage? Nasr never gave the impression that she supported "Fadlallah's life's work". She merely expressed her regret that the old boy was dead, adding - inaccurately - that he had been part of Hizbollah. I don't know what her pompous (and, of course, equally grovelling) "senior vice president" said to her when she was given her marching orders. But like victims of the Spanish Inquisition, Nasr actually ended up apologizing for sins she had never even been accused of. Then within hours, British ambassador Guy began her own self-flagellation, expressing her regrets that she may have offended anyone (and we all know what that means) by her "personal attempt to offer some reflections of a figure who, while controversial, was also highly influential in Lebanon's history and who offered spiritual guidance to many Muslims in need".
I loved the "controversial" bit - the usual "fuck you" word for anyone you want to praise without incurring the wrath of, well, you know who. The Foreign Office itself took down poor Ms Guy's blogapop on old Fadlallah, thus proving - as Arab journalists leapt to point out this week - that while Britain proclaims the virtues of democracy and the free press to the grovelling newspaper owners and grotty emirs of the Middle East, it is the first to grovel when anything might offend you know who.
For that was the collective sin of Misses Nasr and Guy. What they said might have made Israel's supporters angry. And that will never do. The reality is that CNN should have told Israel's lobbyists to get lost, and the Foreign Office - which was indeed upbraided by the Israeli foreign ministry - should have asked the Israeli government when it is going to stop thieving Arab land. But as my old mate Rami Khoury put it in the Jordanian press this week, "We in the Middle East are used to this sort of racist intellectual terrorism. American and British citizens who occasionally dare to speak accurately about the Middle East and its people are still learning about the full price of the truth when Israeli interests are in the room."
Which brings us, of course, to the Grovel of the Week, the unctuous, weak-willed, cringing figure of Barack "Change" Obama as he strode the White House lawn with Netanyahu himself. For here was the champion of the underdog, the "understanding" president who could fix the Middle East - finding it "harder that he thought", according to his spokesman - proving that mid-term elections are more important than all the injustice in the Middle East. It is more than a year now since Netanyahu responded in cabinet to Obama's first criticisms with the remark: "This guy doesn't get it, does he?" (The quote comes from an excellent Israeli source of mine.) Ever since, Netanyahu has been McChrystalling Obama on a near-weekly basis, and Obama has been alternatively hissing and purring, banning Netanyahu from photo calls, but then - as those elections draw nearer - rolling over and talking about how the brave Netanyahu, whose government has just destroyed some more Arab homes in East Jerusalem, is taking "risks for peace".
Needless to say, the only good guys in this story are the courageous Jewish Americans who oppose the thieves in Netanyahu's government and the racism of his foreign minister, the Ahmadinejad-like Avigdor Lieberman. And which Western newspaper was bold enough to point out that the house destruction in Jerusalem "effectively end(ed) an unofficial freeze of such internationally condemned demolitions"? The New York Times? The Washington Post? No, the Israeli newspaper Haaretz, of course. And anyone who thinks Haaretz is alone in condemning the illegal actions of the Israelis should read the excellent Jewish magazine Tikun in the US, which goes for Israel's Likud lobbyists - for they are Likudists - like a tiger. Their latest target was Neal Sher, the Likudist who used to be in the US Justice Department and who is trying to persuade La Clintone to ban Judge Goldstone from America (where he holds a university professorship) for accusing Israel of war crimes in Gaza. And whose government was it that also condemned Goldstone's report? Well, Obama's of course.
Looking back, the Obama grovelling started in that famous Cairo reach-out-to-the-Muslim-world speech, when he referred to the Palestinian "relocation" of 1948 (as if the Palestinian Arabs got up one morning on the birth of Israel and decided that they all wanted to go on holiday to Lebanon). But the moment the world should have got wise was when Obama accepted the Nobel Peace Prize. A man of greater dignity would have acknowledged the honor of such an award, but explained that his own unworthiness prevented him from accepting. But he did accept. He wanted the Nobel Prize. It was more important to accept it even though he did not deserve it. And now? Well, we've all been watching the little groveler this week. Middle East peace? Further colonization of Arab land? Crisis in southern Lebanon? The continued siege of Gaza? Forget it. Think of mid-term elections. Remember the fate of Nasr and Guy. And grovel.
____________
Tricky Bibi
Israel has had many rightist leaders since Menachem Begin promised "many Elon Morehs," but there has never been one like Netanyahu, who wants to do it by deceit.
By Gideon Levy
Haaretz.com
Published 03:14 15.07.10 Latest update 03:14 15.07.10
This video should have been banned for broadcast to minors. This video should have been shown in every home in Israel, then sent to Washington and Ramallah. Banned for viewing by children so as not to corrupt them, and distributed around the country and the world so that everyone will know who leads the government of Israel. Channel 10 presented: The real (and deceitful ) face of Binyamin Netanyahu. Broadcast on Friday night on "This Week with Miki Rosenthal," it was filmed secretly in 2001, during a visit by Citizen Netanyahu to the home of a bereaved family in the settlement of Ofra, and astoundingly, it has not created a stir.
The scene was both pathetic and outrageous. The last of Netanyahu's devoted followers, who believe he is the man who will bring peace, would have immediately changed their minds. Presidents Barack Obama and Shimon Peres, who continue to maintain that Netanyahu will bring peace, would be talking differently had they seen this secretly filmed video clip. Even the objection of Palestinian Authority President Mahmoud Abbas to conducting direct negotiations with the man from the video would be understandable. What is there to discuss with a huckster whose sole purpose is "to give 2 percent in order to prevent 100 percent," as his father told him, quoting his grandfather.
Israel has had many rightist leaders since Menachem Begin promised "many Elon Morehs," but there has never been one like Netanyahu, who wants to do it by deceit, to mock America, trick the Palestinians and lead us all astray. The man in the video betrays himself in his own words as a con artist, and now he is again prime minister of Israel. Don't try to claim that he has changed since then. Such a crooked way of thinking does not change over the years.
Forget the Bar-Ilan University speech, forget the virtual achievements in his last visit to the United States; this is the real Netanyahu. No more claims that the Palestinians are to blame for the failure of the Oslo Accords. Netanyahu exposed the naked truth to his hosts at Ofra: he destroyed the Oslo accords with his own hands and deeds, and he's even proud of it. After years in which we were told that the Palestinians are to blame, the truth has emerged from the horse's mouth.
And how did he do it? He recalled how he conditioned his signing of the 1997 Hebron agreement on American consent that there be no withdrawals from "specified military locations," and insisted he choose those same locations, such as the whole of the Jordan Valley, for example. "Why is that important? Because from that moment on I stopped the Oslo Accords," he boasts. The real Netanyahu also brags about his knowledge of America: "I know what America is. America is something that can be moved easily." For the White House's information.
He calls then-U.S. President Bill Clinton "extremely pro-Palestinian," and says the Palestinians want to throw us into the sea. With such retrograde beliefs, no one can convincingly argue that he wants an agreement.
These remarks are profoundly depressing. They bear out all of our fears and suspicions: that the government of Israel is led by a man who doesn't believe the Palestinians and doesn't believe in the chance of an agreement with them, who thinks that Washington is in his pocket and that he can pull the wool over its eyes. There's no point in talking about Netanyahu's impossible rightist coalition as an obstacle to progress. From now on, just say that Netanyahu doesn't want it.
What if Kadima joins the government and Yisrael Beiteinu leaves? Nothing will change. What if Danny Danon goes leftist and Tzipi Hotovely joins Peace Now? Netanyahu doesn't want it.
If he had said so honestly, as he did when he thought the camera in Ofra was turned off, then he could have been forgiven for his extreme positions. It's his right to think that way and get elected for it. The people will have gotten what they chose. But when Netanyahu hides his real positions under camouflage netting and entangles them in webs of deceit, he not only reduces the chances of reaching an agreement, he also damages Israel's political culture. Many people may want a right-wing, nationalist prime minister, but a prime minister who is a con artist? Is is too much to expect of Netanyahu that he speak to us precisely as he spoke in Ofra? Why do a handful of settlers deserve to know the truth, and not us? Tell us the truth, Netanyahu. Talk to us as if the cameras were off, just as you thought then, in 2001 in Ofra.
Saturday, July 17, 2010
Gulf Oil Update: Day 89
Quick answers elusive in integrity testing of blown-out oil well in Gulf of Mexico
Published: Friday, July 16, 2010, 8:34 PM Updated: Friday, July 16, 2010, 9:13 PM
Jaquetta White,
The Times-Picayune
The first day of an "integrity test" on the blown-out well that for months had been shooting oil into the Gulf of Mexico ended with uncertainty, the federal government's point person for spill response said Friday.
BP PLC, via The Associated PressPressure lower than 6,000 pounds per square inch would signal that the well is damaged and that oil is escaping through fissures somewhere. This pressure gauge was photographed July 13.
Retired Coast Guard Admiral and National Incident Commander Thad Allen said the well appears to be in good condition, but that scientists have not yet been able to rule out the possibility of ruptures in the well below the sea floor.
Efforts were under way Friday to increase monitoring at the site to determine whether there are leaks.
"This is generally good news," Allen said. "I think we're at a point where there's enough uncertainty regarding what the pressure means we need to do due diligence going forward to be in a situation where we don't do any harm."
The integrity test involves measuring the pressure inside the Macondo well, which had until Thursday been gushing oil since the Deepwater Horizon rig exploded and sank in the Gulf of Mexico April 20, killing 11 people. BP operated the rig, which it leased from Transocean. The well was closed in Thursday afternoon so that the test could commence.
High pressure, in the range of 8,000 to 9,000 pounds per square inch, would indicate that the well was completely intact, Allen and BP officials have said. Pressure lower than 6,000 pounds per square inch would signal that the well is damaged and that oil is escaping through fissures somewhere.
The results are important because well integrity, or a high pressure reading, would mean that the well can remain shut and oil flow into the Gulf continually halted until the Macondo well is pumped with cement and sealed next month. Low pressure, however, would mean that the well would need to be reopened, allowing oil to spew unfettered into the Gulf until a system of oil collection vessels began pumping again.
Pressure inside the blown-out Macondo well was at 6,720 pounds per square inch on Friday, a grey area that provided two possible answers about the well's condition, Allen said.
Patrick Semansky, The Associated Press These vessels assisting in the capping of the Deepwater Horizon wellhead were photographed Friday in the Gulf of Mexico.
It's possible that there are holes in the well that are leaking oil, Allen said. But it is also possible that the reservoir has been "depleted" in the near three months since the spill began and is no longer capable of producing high rates of pressure.
"There are plausible supporting arguments for both of those," Allen said. "There's a very good chance that depletion could have done it. We're looking for indications that there could be leakage."
So far, there has been no indication of leaking oil, Allen said.
Two ROVs are monitoring the sea floor around the well looking for burps of methane gas or other anomalies. Four of the undersea robots are conducting sonar scanning. None of the vehicles has detected oil outside the well.
Other tests, one that measures the temperature near the top of the well and another that uses acoustic sensors, also did not find oil.
Preliminary results from a seismic test done Friday also provided no indication of oil below the sea floor. BP senior vice president Kent Wells called the test a "key piece of information."
"If we didn't have integrity and we were leaking oil and gas into some lower formation, this should pick that up," Wells said. "We're continuing with it, and at this point there is no evidence that the well does not have integrity, and that is a good thing."
More testing equipment, including a National Oceanic and Atmospheric Administration vessel, were being brought to the site Friday evening to conduct more tests.
Wells said the results so far appear to match with models BP engineers and government scientists have created for what an intact well with a depleted reservoir would produce.
"We've done modeling under numerous different scenarios. The pressure buildup we're seeing is consistent with the modeling we did around reservoir depletion and full integrity," Wells said. "The longer we monitor these trends the longer we'll convince ourselves that that is the case."
Wells said pressure within the Macondo well would not continue rising if it were breached. Instead it would flat-line, and possibly fall.
A Texas geologist who has been following the gusher said he believed well depletion is the likely cause of the lower-than-hoped-for pressure reading, not a leaking well.
"I don't think it's a cause for immediate concern, because it could reflect a natural loss of oil in the reservoir," said Don Van Nieuwenhuise, director of the Professional Geoscience Programs at the University of Houston. "It's amazing that it has held its strength for as long as it has."
Van Nieuwenhuise said the lack of any sign of oil so far is a good sign.
"When they first said this, I said if they can get to 7,000 (pounds per square inch) that would be good," Van Nieuwenhuise said. "The 8,000 to 9,000 estimate reflects its initial pressure, but since it's been bleeding so much, I'm not surprised it's at 7,000."
BP engineers and a team of government and academic scientists are monitoring the pressure readings and meeting every six hours to determine how to proceed, Allen said. If oil is detected outside the well, Allen said crews would immediately try to relieve the pressure inside the well by releasing oil into the sea again. Oil would flow unfettered until two oil collection vessels, the Helix Producer and the Q4000, could be restarted. That process could take "several hours," Allen said. Together, the vessels have the capacity to collect 35,000 barrels of oil. A BP plan, approved by the Coast Guard last month, calls for a total of four vessels with the capacity to collect up to 80,000 barrels of oil to be at work by the end of this month.
Even if it is determined that the well can remain shut in, that would only be a short-term solution for the gusher. The long-term solution for stopping the leak still is a relief well that would connect with the runaway well at about 18,000 feet below the water's surface and pump it with mud and cement.
The relief well has been drilled to about 17,840 feet. Wells said crews would drill for another 30 feet before intercepting the well at the end of July. From that point, it could take from days to a few weeks to kill the well.
A backup relief well has been drilled to 15,874 feet, but drilling on that well has been suspended so as not to interfere with the primary well.
Published: Friday, July 16, 2010, 8:34 PM Updated: Friday, July 16, 2010, 9:13 PM
Jaquetta White,
The Times-Picayune
The first day of an "integrity test" on the blown-out well that for months had been shooting oil into the Gulf of Mexico ended with uncertainty, the federal government's point person for spill response said Friday.
BP PLC, via The Associated PressPressure lower than 6,000 pounds per square inch would signal that the well is damaged and that oil is escaping through fissures somewhere. This pressure gauge was photographed July 13.
Retired Coast Guard Admiral and National Incident Commander Thad Allen said the well appears to be in good condition, but that scientists have not yet been able to rule out the possibility of ruptures in the well below the sea floor.
Efforts were under way Friday to increase monitoring at the site to determine whether there are leaks.
"This is generally good news," Allen said. "I think we're at a point where there's enough uncertainty regarding what the pressure means we need to do due diligence going forward to be in a situation where we don't do any harm."
The integrity test involves measuring the pressure inside the Macondo well, which had until Thursday been gushing oil since the Deepwater Horizon rig exploded and sank in the Gulf of Mexico April 20, killing 11 people. BP operated the rig, which it leased from Transocean. The well was closed in Thursday afternoon so that the test could commence.
High pressure, in the range of 8,000 to 9,000 pounds per square inch, would indicate that the well was completely intact, Allen and BP officials have said. Pressure lower than 6,000 pounds per square inch would signal that the well is damaged and that oil is escaping through fissures somewhere.
The results are important because well integrity, or a high pressure reading, would mean that the well can remain shut and oil flow into the Gulf continually halted until the Macondo well is pumped with cement and sealed next month. Low pressure, however, would mean that the well would need to be reopened, allowing oil to spew unfettered into the Gulf until a system of oil collection vessels began pumping again.
Pressure inside the blown-out Macondo well was at 6,720 pounds per square inch on Friday, a grey area that provided two possible answers about the well's condition, Allen said.
Patrick Semansky, The Associated Press These vessels assisting in the capping of the Deepwater Horizon wellhead were photographed Friday in the Gulf of Mexico.
It's possible that there are holes in the well that are leaking oil, Allen said. But it is also possible that the reservoir has been "depleted" in the near three months since the spill began and is no longer capable of producing high rates of pressure.
"There are plausible supporting arguments for both of those," Allen said. "There's a very good chance that depletion could have done it. We're looking for indications that there could be leakage."
So far, there has been no indication of leaking oil, Allen said.
Two ROVs are monitoring the sea floor around the well looking for burps of methane gas or other anomalies. Four of the undersea robots are conducting sonar scanning. None of the vehicles has detected oil outside the well.
Other tests, one that measures the temperature near the top of the well and another that uses acoustic sensors, also did not find oil.
Preliminary results from a seismic test done Friday also provided no indication of oil below the sea floor. BP senior vice president Kent Wells called the test a "key piece of information."
"If we didn't have integrity and we were leaking oil and gas into some lower formation, this should pick that up," Wells said. "We're continuing with it, and at this point there is no evidence that the well does not have integrity, and that is a good thing."
More testing equipment, including a National Oceanic and Atmospheric Administration vessel, were being brought to the site Friday evening to conduct more tests.
Wells said the results so far appear to match with models BP engineers and government scientists have created for what an intact well with a depleted reservoir would produce.
"We've done modeling under numerous different scenarios. The pressure buildup we're seeing is consistent with the modeling we did around reservoir depletion and full integrity," Wells said. "The longer we monitor these trends the longer we'll convince ourselves that that is the case."
Wells said pressure within the Macondo well would not continue rising if it were breached. Instead it would flat-line, and possibly fall.
A Texas geologist who has been following the gusher said he believed well depletion is the likely cause of the lower-than-hoped-for pressure reading, not a leaking well.
"I don't think it's a cause for immediate concern, because it could reflect a natural loss of oil in the reservoir," said Don Van Nieuwenhuise, director of the Professional Geoscience Programs at the University of Houston. "It's amazing that it has held its strength for as long as it has."
Van Nieuwenhuise said the lack of any sign of oil so far is a good sign.
"When they first said this, I said if they can get to 7,000 (pounds per square inch) that would be good," Van Nieuwenhuise said. "The 8,000 to 9,000 estimate reflects its initial pressure, but since it's been bleeding so much, I'm not surprised it's at 7,000."
BP engineers and a team of government and academic scientists are monitoring the pressure readings and meeting every six hours to determine how to proceed, Allen said. If oil is detected outside the well, Allen said crews would immediately try to relieve the pressure inside the well by releasing oil into the sea again. Oil would flow unfettered until two oil collection vessels, the Helix Producer and the Q4000, could be restarted. That process could take "several hours," Allen said. Together, the vessels have the capacity to collect 35,000 barrels of oil. A BP plan, approved by the Coast Guard last month, calls for a total of four vessels with the capacity to collect up to 80,000 barrels of oil to be at work by the end of this month.
Even if it is determined that the well can remain shut in, that would only be a short-term solution for the gusher. The long-term solution for stopping the leak still is a relief well that would connect with the runaway well at about 18,000 feet below the water's surface and pump it with mud and cement.
The relief well has been drilled to about 17,840 feet. Wells said crews would drill for another 30 feet before intercepting the well at the end of July. From that point, it could take from days to a few weeks to kill the well.
A backup relief well has been drilled to 15,874 feet, but drilling on that well has been suspended so as not to interfere with the primary well.
Friday, July 16, 2010
Imminent Collapse of American Empire? Niall Ferguson Thinks So
Historian warns of sudden collapse of American ‘empire’
By Brent Gardner-Smith
July 14, 2010 "Aspen Daily News" -- Harvard professor and prolific author Niall Ferguson opened the 2010 Aspen Ideas Festival Monday with a stark warning about the increasing prospect of the American “empire” suddenly collapsing due to the country’s rising debt level.
“I think this is a problem that is going to go live really soon,” Ferguson said. “In that sense, I mean within the next two years. Because the whole thing, fiscally and other ways, is very near the edge of chaos. And we’ve seen already in Greece what happens when the bond market loses faith in your fiscal policy.”
Ferguson said empires — such as the former Soviet Union and the Roman empire — can collapse quite quickly and the tipping point is often when the cost of servicing an empire’s debt is larger than the cost of its defense budget.
“That has not been the case I think at any point in U.S. history,” Ferguson said. “It will be the case in the next five years.”
Ferguson was conscious of opening the Ideas Festival on such a stark note.
“Walter Isaacson, the leader of this great institution said, ‘Don’t be too dark!,’” Ferguson said.
The affable British scholar tried to keep it light. He used a stage whisper to tell the Aspen Institute audience, “I know you’re not comfortable with the word ‘empire,’ especially just after the Fourth of July, but you are the Redcoats now.”
He said the U.S. is now deeply in the red as a country because of a combination of the Great Recession, the resulting federal stimulus and financial bailout programs, two wars, the Bush tax cuts, and a growth in social entitlement programs.
And economic debt can lead to a sudden loss of military power and global respect, Ferguson said.
“By combating our crisis of private debt with an extraordinary expansion of public debt, we inevitably are going to reduce the resources available for national security in the years ahead,” Ferguson said. “Because as a debt grows, so the interest payments you have to make on it grow, even if interest rates stay low. And on current projections, the federal debt is going to be absorbing around 20 percent — a fifth of all the taxes you pay — within just a few years.
“The item of discretionary federal expenditure most likely to be squeezed is of course defense. And there are lots of historic precedents for that,” said Ferguson, who is the author of “Empire: The Rise and Demise of the British World Order and the Lessons for Global Power.”
Ferguson said the financial crisis that started in 2007 “has accelerated a fundamental shift in the balance of power,” with the U.S. shedding power and China absorbing it.
“I’ve just come back from China — a two-week trip there — and the thing I heard most often was, ‘You can’t lecture us about the superiority of your system anymore. We don’t need to learn anything from you about financial institutions and forget about democracy. We see where it has got you.’”
David Gergen of CNN, who moderated the discussion, which also included billionaire Mortimer Zuckerman, asked Ferguson whether it made a difference if the U.S. declined as a world power.
“Having grown up in a declining empire, I do not recommend it,” Ferguson said. “It’s not a lot of fun, actually, decline. To be more serious, a world in which the United States is no longer predominate is not likely to be a better world, actually.”
In what he called his “light moment,” Ferguson said, “I think there is a way out for the United States. I don’t think its over. But it all hinges on whether you can re-energize the real mainsprings of American power. And those two things are technological innovation and entrepreneurship.
“Those are the things that made the United States the greatest economy in the world and the critical question is, ‘Are we going to get it right?’ Can we revive those things in such a way that in the end we grow our way out of this hole the way the United States grew its way out of the 1970s and of course out of the 1930s?”
Editor's NOTE:
It will be impossible to "grow our way out of it" unless we re-establish a credible manufacturing base. As a result of unfair trade policies, inappropropriate currency valuations by foreign countries--especially China and the absence of protective tariffs, industrial production has been moved "off-shore" and labor "out-sourced." Until that is addressed, the situation will not change. Multi-national corporations have a vested interest in making sure it does not change and they have an almost unlimited supply of money with which to influence politicians.
In the absence of a mass awakening of the American population and a populist non-violent uprising, nothing will change.
--Dr. J. P. Hubert
By Brent Gardner-Smith
July 14, 2010 "Aspen Daily News" -- Harvard professor and prolific author Niall Ferguson opened the 2010 Aspen Ideas Festival Monday with a stark warning about the increasing prospect of the American “empire” suddenly collapsing due to the country’s rising debt level.
“I think this is a problem that is going to go live really soon,” Ferguson said. “In that sense, I mean within the next two years. Because the whole thing, fiscally and other ways, is very near the edge of chaos. And we’ve seen already in Greece what happens when the bond market loses faith in your fiscal policy.”
Ferguson said empires — such as the former Soviet Union and the Roman empire — can collapse quite quickly and the tipping point is often when the cost of servicing an empire’s debt is larger than the cost of its defense budget.
“That has not been the case I think at any point in U.S. history,” Ferguson said. “It will be the case in the next five years.”
Ferguson was conscious of opening the Ideas Festival on such a stark note.
“Walter Isaacson, the leader of this great institution said, ‘Don’t be too dark!,’” Ferguson said.
The affable British scholar tried to keep it light. He used a stage whisper to tell the Aspen Institute audience, “I know you’re not comfortable with the word ‘empire,’ especially just after the Fourth of July, but you are the Redcoats now.”
He said the U.S. is now deeply in the red as a country because of a combination of the Great Recession, the resulting federal stimulus and financial bailout programs, two wars, the Bush tax cuts, and a growth in social entitlement programs.
And economic debt can lead to a sudden loss of military power and global respect, Ferguson said.
“By combating our crisis of private debt with an extraordinary expansion of public debt, we inevitably are going to reduce the resources available for national security in the years ahead,” Ferguson said. “Because as a debt grows, so the interest payments you have to make on it grow, even if interest rates stay low. And on current projections, the federal debt is going to be absorbing around 20 percent — a fifth of all the taxes you pay — within just a few years.
“The item of discretionary federal expenditure most likely to be squeezed is of course defense. And there are lots of historic precedents for that,” said Ferguson, who is the author of “Empire: The Rise and Demise of the British World Order and the Lessons for Global Power.”
Ferguson said the financial crisis that started in 2007 “has accelerated a fundamental shift in the balance of power,” with the U.S. shedding power and China absorbing it.
“I’ve just come back from China — a two-week trip there — and the thing I heard most often was, ‘You can’t lecture us about the superiority of your system anymore. We don’t need to learn anything from you about financial institutions and forget about democracy. We see where it has got you.’”
David Gergen of CNN, who moderated the discussion, which also included billionaire Mortimer Zuckerman, asked Ferguson whether it made a difference if the U.S. declined as a world power.
“Having grown up in a declining empire, I do not recommend it,” Ferguson said. “It’s not a lot of fun, actually, decline. To be more serious, a world in which the United States is no longer predominate is not likely to be a better world, actually.”
In what he called his “light moment,” Ferguson said, “I think there is a way out for the United States. I don’t think its over. But it all hinges on whether you can re-energize the real mainsprings of American power. And those two things are technological innovation and entrepreneurship.
“Those are the things that made the United States the greatest economy in the world and the critical question is, ‘Are we going to get it right?’ Can we revive those things in such a way that in the end we grow our way out of this hole the way the United States grew its way out of the 1970s and of course out of the 1930s?”
Editor's NOTE:
It will be impossible to "grow our way out of it" unless we re-establish a credible manufacturing base. As a result of unfair trade policies, inappropropriate currency valuations by foreign countries--especially China and the absence of protective tariffs, industrial production has been moved "off-shore" and labor "out-sourced." Until that is addressed, the situation will not change. Multi-national corporations have a vested interest in making sure it does not change and they have an almost unlimited supply of money with which to influence politicians.
In the absence of a mass awakening of the American population and a populist non-violent uprising, nothing will change.
--Dr. J. P. Hubert
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.
____________
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.
____________
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.
Gulf Oil Update: Day 88
Oil Spill Capped for a Second Day, Offering Some Hope
By CAMPBELL ROBERTSON and HENRY FOUNTAIN
The New York Times
July 16, 2010
NEW ORLEANS — The hemorrhaging well that has spilled millions of gallons of oil into the Gulf of Mexico remained capped for a second day Friday, providing some hope of a long-term solution to the environmental disaster.
BP, via Associated Press
A video image Thursday afternoon showed no oil flowing.
Live video from the seabed Friday morning showed that all was quiet around the top of the well, suggesting the test assessing the integrity of the well was continuing. Earlier in the week, Kent Wells, a senior vice president for BP, had said that the longer the test continued the better, because it would indicate that the pressure inside the well was holding.
The oil stopped flowing around 2:25 p.m. Thursday when the last of several valves was closed on a cap at the top of the well, Mr. Wells said.
The announcement that the oil had stopped flowing into the Gulf came after a series of failed attempts to cap or contain the runaway well that tested the nation’s patience. Mr. Wells emphasized that pressure tests were being conducted to determine the status of the well, which is now sealed like a soda bottle. BP and the government could decide to allow the oil to flow again and try to collect all of it; they could allow the oil to flow and, if tests show the well can withstand the pressure from the cap, close the well during hurricanes; or they could leave the well closed permanently.
The last option seems unlikely, but whatever the decision, the cap is an interim measure until a relief well can plug the leak for good.
“I am very pleased that there’s no oil going into the Gulf of Mexico,” Mr. Wells said, “but we just started the test and I don’t want to create a false sense of excitement.”
That was not much of a risk along the Gulf Coast, where countless livelihoods have been put in jeopardy and fishermen frequently and gloomily remark that Prince William Sound has never been the same since the Exxon Valdez disaster.
“It’s like putting a Band-Aid on a dead man in my opinion,” said Jeff Ussury, 48, who considers his days as a crabber over for good. He doubted the news of the capping was even true.
“I started out kind of believing in them,” he said, “but I don’t believe in them at all anymore.”
Whether it was just the eye of the hurricane or the morning after the storm, the moment was a time to take stock of just how much damage had already been done since the deadly explosion on the Deepwater Horizon oil rig on the night of April 20.
For weeks, the BP spill camera — which along with terms like “top kill,” “containment dome” and “junk shot” made up a growing list of phrases that many people wish they had never learned — had shown a horrible chocolate plume of oil pouring upward from the broken blowout preventer, a symbol of government and corporate impotence. The plume has been a constant presence in the corner of TV screens, mocking reassurances from officials on the news programs who describe the latest attempt to stop the gushing.
But the view on Thursday afternoon was eerily tranquil, just the slate blue of the deep interspersed with small white particles floating across the screen. Though the exact amount of the oil that has poured out of the well may never be known, it was suddenly and for the first time a fixed amount. The disaster was, for a little while at least, finite.
At the White House, President Obama called the development a “positive sign,” though he cautioned that the operation was still in the testing phase.
In statements, Louisiana officials, including Gov. Bobby Jindal, said they were “cautiously optimistic.”
Officials at all levels played down expectations. Thad W. Allen, the retired Coast Guard admiral who is coordinating the spill response, told reporters on Thursday that the cap was primarily meant to be used to shut the well during extreme weather.
“The intention of the capping stack was never to close in the well per se,” he said. “It creates the opportunity if we have the right pressure readings to shut in the well. It allows us to abandon the site if there is a hurricane.”
He said that after the test, the cap would be used to capture oil through surface ships — two that are on the site now and two more that will be in operation in a week or two. With all four collection ships in place, BP could capture all of the oil, estimated at 35,000 to 60,000 barrels per day.
Mr. Wells cautioned that the test could take 48 hours or more, as scientists study pressure readings from the cap. If pressure rises and holds, that would be a sign that the casing — the 13,000-foot string of pipe that lines the well bore — is undamaged.
But if the pressure stays low or falls, that would suggest the well is damaged. In that case, Mr. Wells said, the test probably would be stopped well ahead of schedule, valves would be reopened and collection systems that had been shut down for the test would start again.
“Depending on what the test shows us, we may need to open this well back up,” he said.
The test had been delayed by about two days, first when the government ordered a last-minute review of the procedure out of concern that, by allowing the buildup of pressure, the test itself might harm the well. A particular fear, experts said, was that it might cause a shallow blowout — damaging the well lining close to the seabed, which could allow oil and gas to escape into the gulf outside the well, making the spill worse.
By Wednesday afternoon, those concerns had been allayed and preparations were made to begin the test. But late that night, a hydraulic leak was discovered in part of the choke valve equipment, and the test was scrubbed.
Thursday afternoon the test began again, first with the shutting down of pipes that funneled oil and gas to two surface ships.
In even the most optimistic case, the BP oil spill is far, far from over.
There are still millions of barrels of oil out in the gulf and months of work missing for fishermen and shrimpers; inestimable harm is still being inflicted on wildlife throughout the food chain; and anger still seethes along the Gulf coast.
“What’s to celebrate?” asked Kindra Arnesen, the wife of a shrimper from Plaquemines Parish, La., who has become a recognizable voice of outrage over the past two and a half months.
“My way of life’s over, they’ve destroyed everything I know and love,” she said, before going on to explain, in detail, why she believes the pressure tests are likely to fail.
By CAMPBELL ROBERTSON and HENRY FOUNTAIN
The New York Times
July 16, 2010
NEW ORLEANS — The hemorrhaging well that has spilled millions of gallons of oil into the Gulf of Mexico remained capped for a second day Friday, providing some hope of a long-term solution to the environmental disaster.
BP, via Associated Press
A video image Thursday afternoon showed no oil flowing.
Live video from the seabed Friday morning showed that all was quiet around the top of the well, suggesting the test assessing the integrity of the well was continuing. Earlier in the week, Kent Wells, a senior vice president for BP, had said that the longer the test continued the better, because it would indicate that the pressure inside the well was holding.
The oil stopped flowing around 2:25 p.m. Thursday when the last of several valves was closed on a cap at the top of the well, Mr. Wells said.
The announcement that the oil had stopped flowing into the Gulf came after a series of failed attempts to cap or contain the runaway well that tested the nation’s patience. Mr. Wells emphasized that pressure tests were being conducted to determine the status of the well, which is now sealed like a soda bottle. BP and the government could decide to allow the oil to flow again and try to collect all of it; they could allow the oil to flow and, if tests show the well can withstand the pressure from the cap, close the well during hurricanes; or they could leave the well closed permanently.
The last option seems unlikely, but whatever the decision, the cap is an interim measure until a relief well can plug the leak for good.
“I am very pleased that there’s no oil going into the Gulf of Mexico,” Mr. Wells said, “but we just started the test and I don’t want to create a false sense of excitement.”
That was not much of a risk along the Gulf Coast, where countless livelihoods have been put in jeopardy and fishermen frequently and gloomily remark that Prince William Sound has never been the same since the Exxon Valdez disaster.
“It’s like putting a Band-Aid on a dead man in my opinion,” said Jeff Ussury, 48, who considers his days as a crabber over for good. He doubted the news of the capping was even true.
“I started out kind of believing in them,” he said, “but I don’t believe in them at all anymore.”
Whether it was just the eye of the hurricane or the morning after the storm, the moment was a time to take stock of just how much damage had already been done since the deadly explosion on the Deepwater Horizon oil rig on the night of April 20.
For weeks, the BP spill camera — which along with terms like “top kill,” “containment dome” and “junk shot” made up a growing list of phrases that many people wish they had never learned — had shown a horrible chocolate plume of oil pouring upward from the broken blowout preventer, a symbol of government and corporate impotence. The plume has been a constant presence in the corner of TV screens, mocking reassurances from officials on the news programs who describe the latest attempt to stop the gushing.
But the view on Thursday afternoon was eerily tranquil, just the slate blue of the deep interspersed with small white particles floating across the screen. Though the exact amount of the oil that has poured out of the well may never be known, it was suddenly and for the first time a fixed amount. The disaster was, for a little while at least, finite.
At the White House, President Obama called the development a “positive sign,” though he cautioned that the operation was still in the testing phase.
In statements, Louisiana officials, including Gov. Bobby Jindal, said they were “cautiously optimistic.”
Officials at all levels played down expectations. Thad W. Allen, the retired Coast Guard admiral who is coordinating the spill response, told reporters on Thursday that the cap was primarily meant to be used to shut the well during extreme weather.
“The intention of the capping stack was never to close in the well per se,” he said. “It creates the opportunity if we have the right pressure readings to shut in the well. It allows us to abandon the site if there is a hurricane.”
He said that after the test, the cap would be used to capture oil through surface ships — two that are on the site now and two more that will be in operation in a week or two. With all four collection ships in place, BP could capture all of the oil, estimated at 35,000 to 60,000 barrels per day.
Mr. Wells cautioned that the test could take 48 hours or more, as scientists study pressure readings from the cap. If pressure rises and holds, that would be a sign that the casing — the 13,000-foot string of pipe that lines the well bore — is undamaged.
But if the pressure stays low or falls, that would suggest the well is damaged. In that case, Mr. Wells said, the test probably would be stopped well ahead of schedule, valves would be reopened and collection systems that had been shut down for the test would start again.
“Depending on what the test shows us, we may need to open this well back up,” he said.
The test had been delayed by about two days, first when the government ordered a last-minute review of the procedure out of concern that, by allowing the buildup of pressure, the test itself might harm the well. A particular fear, experts said, was that it might cause a shallow blowout — damaging the well lining close to the seabed, which could allow oil and gas to escape into the gulf outside the well, making the spill worse.
By Wednesday afternoon, those concerns had been allayed and preparations were made to begin the test. But late that night, a hydraulic leak was discovered in part of the choke valve equipment, and the test was scrubbed.
Thursday afternoon the test began again, first with the shutting down of pipes that funneled oil and gas to two surface ships.
In even the most optimistic case, the BP oil spill is far, far from over.
There are still millions of barrels of oil out in the gulf and months of work missing for fishermen and shrimpers; inestimable harm is still being inflicted on wildlife throughout the food chain; and anger still seethes along the Gulf coast.
“What’s to celebrate?” asked Kindra Arnesen, the wife of a shrimper from Plaquemines Parish, La., who has become a recognizable voice of outrage over the past two and a half months.
“My way of life’s over, they’ve destroyed everything I know and love,” she said, before going on to explain, in detail, why she believes the pressure tests are likely to fail.
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