Thursday, July 09, 2009
You're a Great Boss!
It's 'your' company ... did you know that you were going to be so generous to its top executives?
AIG Seeks Clearance For More Bonuses | Washington Post
American International Group is preparing to pay millions of dollars more in bonuses to several dozen top corporate executives after an earlier round of payments four months ago set off a national furor.The troubled insurance giant has been pressing the federal government to bless the payments in hopes of shielding itself from renewed public outrage.
The request puts the administration's new compensation czar on the spot by seeking his opinion about bonuses that were promised long before he took his post.
AIG doesn't actually need the permission of Kenneth R. Feinberg, who President Obama appointed last month to oversee the compensation of top executives at seven firms that have received large federal bailouts. But officials at AIG, whose federal rescue package stands at $180 billion, have been reluctant to move forward without political cover from the government. ...
Wednesday, July 08, 2009
On Thin Ice
Important news about the effects of global warming -- more evidence that Arctic ice is thinning and that ocean temperatures are rising.
This in spite of recent nonexistent sunspot activity ... which appears to have ended.
Nasa Satellites Reveal Extent of Arctic Sea Ice Loss | Guardian
The Earth is going thin on top. A new study has revealed that the Arctic Ocean's permanent blanket of ice around the North Pole has thinned by more than 40% since 2004. Scientists said the rapid loss was "remarkable" and said it could force experts to reassess how quickly the Arctic ice in the summer may disappear completely. They have called for more research to pin down the causes of the change, which they say is probably down to increased melting and shifts in the way the ice moves around.The study, based on satellite measurements, is among the first to estimate the thickness of the Arctic ice, rather than just its surface area.
Ron Kwok, senior research scientist at Nasa's Jet Propulsion Laboratory in California, said: "Even in years when the overall extent of sea ice remains stable or grows slightly, the thickness and volume of the ice cover is continuing to decline, making the ice more vulnerable to continued shrinkage."
The study looked at measurements taken of the Arctic region by the ICESat satellite, launched in 2003.
Overall, the experts found that the ice, typically up to about 3m thick, thinned by 67cm over the last four winters.
Converting to ice volume, the scientists worked out the amount of so-called multiyear ice, which persists through Arctic summers, had decreased in the winter by up to 6,300 cubic kilometres since 2005 – a decline of more than 40%. The research is published in the Journal of Geophysical Research: Oceans.
Kwok said: "Ice volume allows us to calculate annual ice production and gives us an inventory of the fresh water and total ice mass stored in Arctic sea ice. Our data will help scientists better understand how fast the volume of Arctic ice is decreasing and how soon we might see a nearly ice-free Arctic in summer."
The Arctic ice cap fluctuates with the seasons, growing in the freezing winter and shrinking over the summer. An important finding of the study is that the majority of Arctic ice no longer survives the summer. In 2003, this multiyear ice made up 62% of the region's total ice volume. By 2008, this was down to 32%. The remaining 68% was "first-year" seasonal ice, which was open water during the summer, so is thinner and more likely to melt away.
Earlier this year, scientists warned that sea ice volume reached a record low in 2008 due to an unusually high proportion of the thinner first year ice.
New Report: Rising Ocean Temperatures Near UN’s Worst Case Predictions | Ocean Power Magazine
The European Policy Centre in Brussels released a report late yesterday warning that the ocean is warming about 50 percent faster than two years ago. Their report compiled research presented at the Science Congress in Copenhagen in March. They estimate that recent observations are near the worst-case predictions of the 2007 report by the United Nations Intergovernmental Panel on Climate Change, and that the new estimates help to better explain the trend in sea level that has been observed in recent decades as most of the sea-level rise observed until recently has been the result of thermal expansion of seawater.According to the authors of the report titled “Climate change: Global risks, Challenges & Decisons“, ocean temperatures are a better indicator of global warming than air temperature as the ocean stores more heat and responds more slowly to change. Findings indicate that the top 700 metres of have warmed by about 0.1 degrees over the past half century. The disconcerting aspect of that number is that well over half of the increase in ocean temperature has occurred in the last 10 years which corresponds to approximately 15 to 20 times more heat going into the ocean than has gone into the atmosphere.
This report is another important piece of evidence that should be considered in the talks leading up to the Copenhagen Climate Change Summit in December.
Sunspot Activity Ramping Up Out of Deep Slumber | Scientific American
It wasn't quite fireworks, but the sun's activity, coming out of a long, deep lull, picked up a bit over the July Fourth weekend. A group of sunspots, which mark intense magnetic activity, appeared in the past few days—a patch larger and more populous than any yet this year, according to data from the Space Weather Prediction Center.As we reported in April, this year got off to a slow start in terms of sunspots, which typically wax and wane in an 11-year cycle. The minimum of that cycle brought an exceptionally quiet 2008, one of the least active sunspot years of the century
Tuesday, July 07, 2009
We Will Not Participate
Here is a tiny bit of balance to today's news/entertainment media orgy.
We also still think that the commentary "The Man in the Mirror" by James Howard Kunstler is right on target.
Needless to say, we will not have the television or radio this morning.
Behind the Facade | Bob Herbert/New York Times
Meeting Michael Jackson in the mid-1980s was one of the creepier experiences of my life. I was an editor at The Daily News and had to present him with an award in a large room with just a handful of onlookers and a photographer at Madison Square Garden. I wasn’t put off by the fact that Jackson, then in his mid-20s, couldn’t make small talk. Lots of people have trouble with that. There was something about his overall behavior that weirded me out. He seemed, even then, to be a person who was trying with all of his being to step outside of reality and leave it behind.Emmanuel Lewis, the child star of the hit TV series “Webster,” was with Jackson that evening. The undersized Lewis was probably 13 at the time, but he looked much younger, maybe 7 or 8.
Jackson seemed to relate only to Lewis. He made faces at the tiny boy and giggled as Lewis hopped around and climbed over furniture, much to Jackson’s delight. I remember thinking as I left the Garden that Jackson had treated Lewis almost as a pet.
I’ve never heard any suggestion of anything improper about the relationship between Jackson and Lewis. But what I wish I had thought more about in those long-ago days of Michael-mania was the era of extreme immaturity and grotesque irresponsibility that was already well under way in America. The craziness played out on a shockingly broad front and Jackson’s life, among many others, would prove to be a shining and ultimately tragic example.
Ronald Reagan was president, making promises he couldn’t keep about taxes and deficits and allowing the readings of a West Coast astrologer to shape his public schedule. The movie “Wall Street” would soon appear, accurately reflecting the nation’s wholesale acceptance of unrestrained greed and other excesses of the rich and powerful.
In neighborhoods through much of black America, crack was taking a fearful toll. Young criminals were arming themselves with ever more powerful weapons, and prison garb was used to set fashion trends.
Motown was the label that gave us the Jackson 5. But when Michael and his brothers released their first album in 1969, the label had already reached its creative peak and most of the best work — the stunning originality of the Miracles, the Marvelettes, Mary Wells, Martha and the Vandellas, the Supremes, the Temptations, and others — had been done. Hip-hop would soon appear, and then the violence and misogyny of gangsta rap.
All kinds of restraints were coming off. It was almost as if the adults had gone into hiding. The deregulation that we were told would be great for the economy was being applied to the culture as a whole. Women could be treated as sex objects again as misogyny, hardly limited to hip-hop, went mainstream. (Have you looked at network television lately, or listened to the radio?) Astonishing numbers of men abandoned their children with impunity. Most of the nation seemed fine with the idea of going to war without a draft and without raising taxes.
In many ways we descended as a society into a fantasyland, trying to leave the limits and consequences and obligations of the real world behind. Politicians stopped talking about the poor. We built up staggering amounts of debt and called it an economic boom. We shipped jobs overseas by the millions without ever thinking seriously about how to replace them. We let New Orleans drown.
Jackson was the perfect star for the era, the embodiment of fantasy gone wild. He tried to carve himself up into another person, but, of course, there was the same Michael Jackson underneath — talented but psychologically disabled to the point where he was a danger to himself and others.
Reality is unforgiving. There is no escape. Behind the Jackson facade was the horror of child abuse. Court records and reams of well-documented media accounts contain a stream of serious allegations of child sex abuse and other inappropriate behavior with very young boys. Jackson, a multimillionaire megastar, was excused as an eccentric. Small children were delivered into his company, to spend the night in his bed, often by their parents.
One case of alleged pedophilia against Jackson, the details of which would make your hair stand on end, was settled for a reported $25 million. He beat another case in court.
The Michael-mania that has erupted since Jackson’s death — not just an appreciation of his music, but a giddy celebration of his life — is yet another spasm of the culture opting for fantasy over reality. We don’t want to look under the rock that was Jackson’s real life.
As with so many other things, we don’t want to know.
Copyright 2009 The New York Times Company
We also want to point out that in our opinion, M. Jackson was in large measure a marketing and media creation (today's extravaganza serves as yet another prime example) ... as an entertainer and musician, he literally pales in comparison with Louis Armstrong, Billie Holiday, Nat King Cole, Ella Fitzgerald, Sarah Vaughn, Sammy Davis, Jr., Chuck Berry, Little Richard, Ray Charles, etc.
Monday, July 06, 2009
Mired in the Swamp
Earthside Comments: We are in an economic swamp in this country and it looks like there may be no way out ... until natural processes simply evaporate away all the brackish water.
James Howard Kunstler here lays out the state of the nation; there is link to an excellent essay from Chris Hedges explaining the growing unfairness and frustration and hopelessness for so many Americans; and a link to an advocacy piece from liberal Robert Kuttner telling us about the sad prospects for the immediate future: more bailouts and even more deficit spending.
Since the presidency of Ronald Reagan this country has relied upon the free lunch for government and economic policy -- we can have all we want, still cut taxes, and borrow from the future to pay for it -- that illusion and mindset has now blown-up in our faces. Our rapacious consumption has made too many Americans soft and spoiled ... sorry to say, but now the only way out is through hardship and pain.
The Free and the Dead | James Howard Kunstler
I was out on a big Adirondack lake in a canoe this weekend while the American economy was dying -- but you wouldn't have known it for the fleets of giant power boats dragging children back and forth across the water on rubber tubes, and the giant camping vehicles crammed into every bare spot. How do people pay for these things, I wondered. For not a few, installment loans, no doubt -- though that still begs the question. The sheer programming of American life runs wide and deep. We are, apparently, a people born to drag children behind hundred-and-fifty horsepower two-stroke engines, so that's what we do, no matter what is really going on in the world. Alas, mindless programming is the sort of thing that kills societies.Watching the summer panorama on an Adirondack lake is like reading a history of the post World War Two decades, because almost nothing on view there now existed before 1945 and we'll be stunned to see how swiftly it all terminates. The fantastic prosperity of these postwar decades killed the wildness of these once-remote lakes. Fortunes were made -- like everywhere else in the USA -- carving up the landscape and deploying graceless houses made of cheap, fabricated materials. All the diabolical genius brought to engineering the New Jersey and Long Island suburbs was eventually turned loose on the Adirondack wilderness, with predictable results. The lakes themselves, stuffed with all those sleek plastic power boats, are like the Long Island Expressway minus the painted lanes.
The American victory over manifest evil in World War Two was so total that there was no one else left on earth to compete with in making and selling useful articles, at least for a while. And it produced a middle class so well-paid that it could express itself in a vast spewage of plastic and leisure across the land. The human race will look back on this society with wonder and nausea for whatever remains of its time on Earth. For at least twenty years, though, this way of life has been running on fumes, inertia, and promissory notes. The amazing thing is that these life-extension strategies worked, especially the past ten years when there was really nothing left besides a Ponzi structure of interlocked swindles and rackets.
When the time comes when we do look back to understand what went wrong, I think we'll see that the Woodstock generation went off the rails in 1980, with the election of the actor, Ronald Reagan, who really established the idea that a society could benefit hugely just by lying to itself, or simply pretending. It wasn't "morning in America," of course. It was more like eleven-thirty at night, and the rest of the world had eaten our breakfast, lunch, and dinner, and we decided that inflating our national self-esteem was more important than paying attention to reality. That was when we became a something-for-nothing society -- and, incidentally, it was also the take-off point for legalized gambling all over America (an "industry" based on the worship of unearned riches). And that was, coincidentally, the moment when we became a nation of dupes, grifters, marks, and suckers.
Now, when I look around that Adirondack lake, I can easily imagine the time -- not far off -- when the motors cease to ring, and the big, white plastic ridiculous power boats vanish from the scene, and the houses along the shore de-laminate, or are plundered for their materials, and the sites they occupy return to nature, and the aroma of roasting hot dogs no longer wafts on the summer air, and the pastures and orchards run back from the shoreline up the slopes, with people laboring earnestly in them -- rather than dragging children on plastic tubes around the water behind a boat that gets four miles to the gallon of gasoline.
For those still capable of paying attention to our national predicament, the questions are: what happens from here... and how does it happen?
Over the last ten days, somebody shot the "Green Shoots" narrative in the head. There is no way the American economy can re-expand. This is a debt deflation like unto nothing the world has ever seen before. We've entered the really painful zone of the "work-out" where insolvency can no longer be denied. Things will be heard crashing every day -- enterprises, households, assets, institutions, prospects, deals. No amount of stimulus, first, second, or beyond, will avail to stop this process.
President Obama had better turn his efforts from pretending to re-start the revolving credit rackets to overseeing the comprehensive re-simplifying of American life. I think he has a few weeks to turn his rhetoric around before the political mischief begins for real, and the aggrieved classes start shooting things up and burning things down. These classes really do need something to hope for, and something to work at, and something to occupy their attention besides their grief over the massive losses in their lives. But none of that energy will be focused beneficially unless they hear the truth... that there really is no going back to what was before.
It's also vitally important to commence public hearings and official investigations of those who committed real crimes and malfeasances. Bernie Madoff has been salted away for two and a half lifetimes, but Henry Paulson is still at large after overseeing the creation of the biggest heap of fraudulent securities the world has ever known -- and then betting against them in the swaps market, in effect shorting his own swindle -- not to mention his misdeeds at the US Department of the Treasury. Why are those other Wall Street smoothies still enjoying their Hamptons villas while the foreclosed set up tents in the Sacramento Delta? Why are the government officials who failed so miserably at regulation still enjoying their salaries, perqs, and pensions while those not employed by a bloated government struggle to stay alive another week. And how many more weeks will go by before Michael Jackson is buried in the ground?
The Crooks Get Cash While the Poor Get Screwed | Chris Hedges/TruthDig.com
3 Reasons We Need an Economic Wake Up Call | Robert Kuttner/Huffington Post.com
Corporate Campaign Contribution Corruption
Earthside Comments: The total implosion of our American republic into a tar pit of corruption may be looming before us.
As the article here explains, the five 'conservative' members of the Supreme Court appear to be ready to lift any constraints on direct corporate giving to candidates for public office.
The resulting tsunami of money from the mega-transnational corporations, and the competitive pressure on unions and other special interests to match their spending, would turn the 2010 and 2012 federal elections into a donnybrook of fundraising that our already corrupt campaign finance system simply could not survive.
Even now the influence of "legalized bribery" (also known as campaign contributions) is skewing the debate in Washington on the environment and health care heavily towards the desires of corporations and away from the needs of citizens. Yet serious campaign finance reform, like public financing, warrents not even a peep in the halls of Congress or the White House.
With an American public already cynical over bailouts for billionaires, loading trillions of dollars in federal debt on our grandchildren and great-grandchildren, and the income gap between 'us' and 'them' growing even larger -- it is doubtful that a fully 'corporatized' national government would long enjoy the "consent of the governed."
The future of the republic is certainly in jeopardy.
If Republicans were wondering how their 2012 presidential candidate is going to compete against President Obama's $600 million fundraising juggernaut, the Supreme Court seems poised to provide an answer: unlimited corporate spending supporting the Republican candidate, or attacking Obama.In a Supreme Court term that has had its share of surprises, the court saved one of the biggest for last. Rather than publish an opinion at the end of the term as expected in an obscure campaign finance case, Citizens United v. FEC, the court issued a rare order for reargument of the case in September (before the usual start of the term). At that point, the court will consider whether to overrule its two previous decisions that in 1990 and 2003 upheld limits on corporate spending in federal elections.
Given the dynamics of the court, there is a great chance the justices will use the opportunity to overrule limits on how much money corporations can spend supporting candidates—whether or not Judge Sonia Sotomayor is confirmed in time to hear the case in September. In the Voting Rights Act case the court considered last week, the court ducked the constitutional question in favor of narrow statutory interpretation. In contrast, in Citizens United, the court is likely to address the constitutional questions head-on, and the outcome likely will not be good for supporters of reasonable campaign-finance regulation.
First, a bit of background: Citizens United produced an anti-Hillary Clinton documentary. The group wanted to air the documentary during the 2008 presidential primary season through a cable television "video on demand" service and to advertise for it on television. In exchange for a $1.2 million fee, a cable television operator consortium would have made the documentary available to cable subscribers to download free "on demand," as part of an "Election '08" series. Citizens United is an ideological group (like the NRA or Planned Parenthood), but it takes for-profit corporate funding. The McCain-Feingold campaign-finance law passed in 2002 bars certain corporate-funded television broadcasts, such as this documentary, in the period before an election. And the law requires disclosure by the funders of election-related broadcast advertising, such as these ads. Citizens United argued against the corporate-spending ban. (It also attacked the disclosure provisions, but they're probably not really in trouble.)
Citizens United made a series of alternate arguments as well, from narrow statutory ones to the broad argument that the court should overrule its 1990 case Austin v. Michigan Chamber of Commerce, which upheld limits on corporate spending in candidate elections. Before argument, I expected the court to decide this case narrowly, by reading McCain-Feingold's statutory rules barring corporate-funded television broadcasts as not applying to video-on-demand broadcasts. That would be in line with the Roberts court: The chief justice has tended to prefer a chipping away at existing precedent rather than dramatic decisions to move the law in his direction. But, as Dahlia Lithwick explained, at oral argument the government's lawyer got into some trouble in suggesting that the government would have the constitutional power to ban corporate-published books just before the election. That made it seem like the court could well be poised to overrule Austin.
Though three Justices (Kennedy, Scalia, and Thomas) have voted repeatedly for Austin to be overruled, Chief Justice Roberts and Justice Alito thus far have moved more cautiously. In each of the campaign-finance cases decided by the Roberts court, these justices have sided with those challenging the law, but in an incremental way. If Roberts or Alito were ready to go the narrow route again in Citizens United, however, there would have been no reason to set the case for reargument explicitly asking the parties to brief the constitutional question, and certainly no reason to rush the case to September so it can be decided before the 2010 election season goes into full swing.
And there's a tantalizing hint of where the court will go in another obscure campaign-finance case decided last year, FEC v. Davis. That case involved a different provision of McCain-Feingold, one involving raising contribution limits for candidates facing wealthy opponents. Justice Alito used the case to attack the underlying reasoning of Austin, which upheld the spending limits on grounds that corporate wealth "distorts" the political process and allows spending by corporations "disproportionate" to the views of those in society. In Davis, Justice Alito, for the five conservatives on the court, attacked this equality rationale and said it is "dangerous business" for Congress to try to influence voter choices through "leveling" electoral opportunities. He pointedly cited with approval Justice Kennedy's Austin dissent.
If Roberts and Justice Alito were ready to overrule Austin, why not do it now? I can think of two possible reasons. They may not have wanted to take the plunge on Justice Souter's last day on the court. He has been an ardent defender of these laws. Perhaps more to the point, Justice Alito, in two campaign-finance cases, has said that he would not consider revisiting old campaign-finance precedent until the issue was squarely before the court and briefed. In other words, Alito wants a full airing of the issues before taking such a momentous step.
Now he will get that. And then what? If after reargument in September, corporate limits fall—and limits on the money labor unions can spend on campaigns, with them—we may well look back on the 2008 election as a quaint time when the amounts spent on elections were relatively modest. Expect the floodgates to open, and the money to flow freely, as early as next year.
Saturday, July 04, 2009
Independence Day
July 4, Independence Day in the United States of America, is a day commemorating revolution.
It is a day to celebrate the signing of the Declaration of Independence, a document stating that subjects of the King of England in North America were in rebellion against his governance.
We highly recommend that you read words of the Declaration.
National Archives
Among the many things the Declaration says are these progressive and liberal notions:
Independence Day is meant to be a national holiday in celebration of key principles and ideas that establish freedom and liberty for us as individuals and for us as a national community.
Though it was necessary to engage in an open, armed rebellion against the established government of Great Britain, this is not, therefore, primarily a day about war.
Yet, this is what a right-wing, militaristic, political faction in this country is attempting to convert 'the Fourth of July' into ... yet another holiday for the glorification of violence and subservience to the military.
For instance, for Independence Day, our local suburban newspaper inserted this week an entire special section full of photographs and accounts of veterans of wars of the recent past entitled "A Tribute to Service." Of course, it is full of advertising with 'Fourth of July' themes and proclaiming support for 'our troops'.
In our view, this is either craven profiteering by the newspaper on the service of veterans, or part of an effort to turn Independence Day into yet another holiday dedicated to war ... or both, of course.
The 'Drudge Report' this morning headlines its web page with a photograph of U.S. soldiers in Iraq or Afghanistan -- nothing to do with the Declaration of Independence that we are celebrating, but again equating liberty with war.
Earthside asks good Americans to reject the propaganda that Independence Day is all about "the troops" and "the veterans" ... this is a day less about them and more about why ... why soldiers fought for this country, but also why Benjamin Franklin (not in the Continental Army) and Thomas Jefferson (author of the Declaration and not in the Continental Army) and John Adams (not in the Continental Army) and thousands of other good patriotic Americans throughout our history contributed and sacrificed for freedom and liberty and ... were NOT part of the military.
The originally anti-war Veterans Day (Armistice Day) and Memorial Day (Decoration Day) -- both dedicated to reminders of the horror of war -- have been hijacked by those who glory in war and seem to want a special class of citizenship conferred upon 'veterans'.
Let us be vigilant to keep Independence Day, the Fourth of July, true to its genuine meaning ... we are all advocates for freedom and liberty who hold with the principles enshrined in the Declaration of Independence, signed on this day 233 years ago.
Friday, July 03, 2009
Crushing Debt
As we have said now for years, the problem is extreme debt ... Bush and Obama have only made the bursting of the debt bubble worse by trying to use more debt to re-inflate the bubble.
This crisis is a long way from being over, and when it is over, we will be living in a very different world.
'We're in the Middle of a Crash': Black Swan | CNBC
The financial system is crashing and action must be taken by the US government to convert debt into equity to produce a more stable environment, Nassim Taleb, author of "The Black Swan," told CNBC Thursday. "You may have green shoots, whatever you want to call them, you may have temporary relief, but you are still in a world that's breaking," Taleb said on "Squawk Box."Anything that's fragile like the financial system will eventually crash, he said.
"We're in the middle of a crash," Taleb said. "So if I'm going to forecast something, it is that it's going to get worse, not better."
The government needs to deleverage debt and not try stimulus packages that will inflate assets, he said.
"What makes me very pessimistic in not seeing any leadership or awareness on parts of government on what has to be done, which is deleverage $40-to-$70 trillion," Taleb said.
"The monkey on our back is debt," he added.
As an example, Taleb said banks should not be sending demands for larger and larger sums from homeowner in arrears on their mortgage. Instead the bank should offer to lower the monthly payments in return for part-ownership of the property.
"People would be able to start from scratch on a healthy basis. You don't want to wait for foreclosure," he said.
© 2009 CNBC, Inc.
Here is a link to an article that lays out some important ideas for mitigating the effects of the exploded debt bubble. Tough choices have to be made, choices that Obama and the Dimocrats are incapable of making ... but the course is rather clear: we must bring real, sustainable production and localized economies back to the United States.
Our Jobless Recovery | Leo Hindery Jr. & Leo W. Gerard/The Nation
... The current jobs crisis is in part a reflection of the misplaced priorities of previous administrations, which let America's manufacturing sector decline vis-a-vis our services economy. As a result, manufacturing industries now represent just 11.5 percent of GDP; the number of people working in manufacturing accounts for only 8.7 percent of the jobs in the country; and we have run an average trade deficit in manufactured goods of more than $500 billion over the past five years, all of which contributed to the huge buildup of US debt in recent years.This almost complete neglect of our manufacturing base relative to our service sector represents the height of irresponsibility, because compared with those in manufacturing, service jobs pay below median wages, do very little to help America's balance of trade, have a much smaller multiplier effect on other parts of the economy and mostly just move incomes around the country.
Regrettably, however, some in the Obama administration have extended this neglect by essentially taking the position that a job is a job, whether it is in the manufacturing or service sector. ...
... The administration and Congress need to replace our decades of misguided trade policies with trade agreements that have meaningful labor and environmental standards and that forbid illegal subsidies and currency manipulation. They also need to dispense with "one size fits all" trade agreements that ignore significant differences in levels of development, forms of government and reciprocity. Specifically, there can be no compromise on these principles when it comes to the pending trade deals with South Korea, Panama and Colombia.
Most important, however, we need a fundamental re-examination of our trade relationship with China, which the new administration promised would occur early in this term. ...
... Half of the nation's individual income today is earned by just the top 12 percent of taxpayers, many of whom have benefited directly or indirectly from the outsourcing of US manufacturing and service jobs, while the other half is earned by all the other 122 million taxpayers combined, most of whom have seen their wages stagnate over the past two decades. And even more sobering, the top seven-tenths of 1 percent of taxpayers alone earn a staggering 20 percent of the nation's income. All in all, this represents the greatest income inequality in the United States since 1928.
We can either focus our recovery efforts on creating full employment for those workers who are not part of that top 10 percent or so of taxpayers and on rebuilding the country's manufacturing base; or, as we have been doing for nearly three decades, we can concentrate on policies that mostly benefit the incomes of the wealthiest few.
Economically--and ethically--the choice is obvious.
Thursday, July 02, 2009
Stuck
Earthside Comments: It appears that the U.S. economy is stuck. Maybe the economy is not crashing, however, the slow slide into the bog continues.
Unemployment is the key indicator as reported this morning. That there is little hope for an end to this recession is seen in the Wall Street Journal report: the bankers are on track to the big pay they gave themselves just two years ago ... stuck.
Finally, note this line from the Financial Times analysis below: "... the Walton family, of Wal-Mart fame, is wealthier than the bottom third of the US population put together – about 100 million people ..." Is there any wonder why the economy is in so much trouble and why average Americans as cynical and distrustful of the way business and government are conducted in this country?
Job Losses Outpace Outlook | MarketWatch.com
Workers lost jobs at a faster pace in June than in the prior month, the Labor Department said Thursday. Nonfarm payrolls shrank by 467,000 in June higher than the 325,000 decline expected by economists surveyed by MarketWatch and the 322,000 jobs lost in May. The unemployment rate ticked higher to 9.5% in June from 9.4% in the previous month. Economists had expected the unemployment rate to rise to 9.6%. Average hourly earnings were flat at $18.53. Economists had been expecting a 0.2% gain. Earnings are up 2.7% in the past year. The average workweek fell six minutes to 33.0 hours. Hours worked fell 0.8%.
Big Pay Packages Return to Wall Street | Wall Street Journal
Business is back on Wall Street. If the good times continue to roll, lofty pay packages may be set for a comeback as well.Based on analysts' earnings forecasts for 2009, Goldman Sachs Group Inc. is on track to pay out as much as $20 billion this year, or about $700,000 per employee. That would be nearly double the firm's $363,000 average last year, and slightly higher than the $661,000 for the average Goldman employee in fiscal 2007, according to analyst estimates reviewed by The Wall Street Journal. ...
Debt is Capitalism’s Dirty Little Secret | Ben Funnell/Financial Times
Just why is there so much debt in the Anglo-Saxon world? Bankers and regulators know well that it is in nobody’s long-term interests to have allowed borrowing to escalate to a position where the US now owes far more, as a multiple of the economy, than at the start of the Great Depression.The answer is capitalism’s dirty little secret: excessive lending was the only way to maintain the living standards of the vast bulk of the population at a time when wealth was being concentrated in the hands of an elite.
The amount by which the elite has benefited is startling, and illustrates the problem with lightly regulated free markets: the rich get much richer while the rest do not get richer at all. According to Société Générale economists, the inflation-adjusted income of the highest-paid fifth of US earners has risen by 60 per cent since 1970, while it has fallen by more than 10 per cent for the rest. As was recently pointed out in the New York Review of Books, the Walton family, of Wal-Mart fame, is wealthier than the bottom third of the US population put together – about 100m people. These are staggering statistics, confirmed by measures such as the US and UK’s ever-rising Gini coefficients, which estimate income disparity. Another way of putting this is that the share of profits in gross domestic product is at a 100-year high, or was until very recently.
Put simply, the benefits of economic growth have gone into the pockets of plutocrats rather than the bulk of the population. So why has there been no revolution? Because there was a solution: debt. If you couldn’t earn it, you could borrow it. Cheap financing was made widely available. Financial innovations such as the asset-backed securities market aided this process, as did government-sponsored agencies such as Fannie Mae and Freddie Mac. Regulators welcomed it all while perhaps taking insufficient account of the moral hazard problem it posed: that ever-increasing leverage meant the authorities had to keep interest rates low, otherwise the debt burden would cripple consumption. This prompted more leverage, which exacerbated the problem.
A walk in any low-income area in the UK confirms this. There are BMWs in the driveways, satellite dishes on the roofs and furniture delivery vans on the streets. In both Britain and America the jobless were encouraged to buy their own homes. No one begrudges anyone else the right to own a home or buy luxury goods. The problem is that the luxuries need to be paid for out of earnings and the houses out of equity topped up with an affordable amount of debt.
The question is whether the debt load – total US credit market debt outstanding was $53,000bn (€38,000bn, £32,000bn) at the end of March, or 3.7 times GDP – is at all sustainable and, if not, how it can be lowered without sinking the economy. Those pushing extra debt in an effort to boost the economy via increased consumption point to the scale of assets backing the debt. The net worth of US households, including their houses and after counting debt, was $50,000bn in March, according to the Fed. Not a bad tally for 306m people: $165,000 each. However, the cost of servicing this debt as a proportion of income, even with record low rates, is at a 30-year high, above 15 per cent, as incomes have stagnated and the total level of debt has risen.
The debt burden has to come down, which means more saving and lower economic growth for many years to come. Along the way inflation is likely to return, probably sooner and more violently than most expect, which will prompt investors to demand a higher return and make it even harder for governments to tackle the debt. At best the debt will fall slowly over many cycles and simply trim otherwise resilient growth. At worst it could cause growth to lurch upwards before tumbling again, with all the attendant uncertainty that entails. At this point, no one can know which is more likely. I incline to the more benign view because of the size of household assets but, if the dollar’s reserve currency status should come under serious attack, rates would have to rise to defend it and that could itself cause a consumption crisis.
What can be done? First, although it is not ideal, we should not be too hasty about abandoning the capitalist model. It is less bad than any other system yet invented. But we should redouble our efforts to increase productivity through innovation and creating new markets; simply squeezing lower-income workers is a bad option, which helped get us into this mess in the first place. This requires investment in education and research. Second, we have to learn to live within our means. This means spending less than we earn, perhaps doing without the BMWs, flat-screen television sets and leather sofas. Third, we should be careful in distributing the higher tax burden that we will inevitably have to bear over the coming decade. Very high marginal tax rates did not work in the 1970s and will not work now. That said, income disparity at current levels is a political time-bomb that needs to be dealt with. Finally, we should all come to terms with the fact that these are structural issues needing structural solutions; they need to be enforced over a longer time period than any one government’s term. So we need a new political consensus, one aimed at reducing overall debt levels while reducing inequality by encouraging education, entrepreneurship and investment in innovation.
Copyright The Financial Times Limited 2009
Wednesday, July 01, 2009
Death of a Fine Actor
It sure seems like there have been quite a spate of celebrity deaths in the past few weeks.
But today saw the demise of one of the finest actors of the mid-twentieth century.
Oscar, Emmy-Winning Actor Karl Malden Dies at 97 | Washington Post
Karl Malden, 97, an Academy Award-winning actor who excelled in plainspoken, working-class roles, including the awkward Mitch in "A Streetcar Named Desire" and a brave priest in "On the Waterfront," died today at his home in Los Angeles. No cause of death was immediately disclosed. Mr. Malden's bulbous nose and thinning hair made him one of the most familiar sights in movies and on television for five decades. In the 1970s, he became known to millions of viewers as a police veteran who partners with a young inspector played by Michael Douglas on the ABC drama series "The Streets of San Francisco." ...... Mr. Malden was a steelworker before winning important stage roles on Broadway. He made his greatest mark on Hollywood in the early 1950s as part of a group of New York theater stars -- headed by actor Marlon Brando and director Elia Kazan -- who were trying to bring an unpredictable, realistic style of acting to audiences. ...
... Mladen George Sekulovich, the son of Serbian immigrant laborers, was born March 22, 1912, in Chicago and raised in Gary, Ind. He changed his name in the late 1930s at Kazan's urging, but Mr. Malden said he felt so guilty that he tried to insert the name Sekulovich wherever possible on film, whether on an office nameplate or shouted out to a fellow TV detective in "The Streets of San Francisco." ...
... He was nominated four times for an Emmy in "The Streets of San Francisco" and won for outstanding supporting actor in a limited series or a special for "Fatal Vision" (1984) as the father-in-law of a murderer. He continued to take occasional film and television parts, among them Barbra Streisand's father in "Nuts" (1987) and a priest in an episode of "The West Wing."
From 1989 to 1992, he was president of the Academy of Motion Picture Arts and Sciences and helped raise millions of dollars to build a new library and film research center. He received a Screen Actors Guild award for a lifetime of achievement in 2004.
Survivors include his wife of 70 years, former actress Mona Graham; two daughters, Mila and Carla; three granddaughters; and four great-grandchildren.
Monday, June 29, 2009
Reflection
James Howard Kunstler's commentary today is perfect for the moment ... sadly.
The Man in the Mirror | James Howard Kunstler
As America entered the horse latitudes of summer, befogged in a muffling stillness on deceptively calm seas, we were distracted for a while by visions of a pale death angel moonwalking across the deck of collective consciousness. Eerie parallels resound between the sordid demise of pop singer Michael Jackson and the fate of the nation.
Like the United States, Michael Jackson was spectacularly bankrupt, reportedly in the range of $800-million, which is rather a lot for an individual. Had he lived on a few more years, he might have qualified for his own TARP program -- another piece of expensive dead-weight down in the economy's bilges -- since it is our established policy now to throw immense sums of so-called "money" at gigantic failing enterprises (while millions of ordinary citizens wash overboard, without so much as a life-preserver). Anyway, Michael Jackson was on the receiving end of one huge bank loan after another long after his pattern of profligacy was set and obvious. They threw money at him for the same reason that the federal government throws money at entities like CitiBank: the desperate hope that some miracle will allow debt servicing to resume. Michael could burn through $50-million in half a year. It didn't seem to affect his credibility as a borrower. When his heart stopped last week, he was living in a Hollywood mansion that rented for several hundred thousand dollars a month. You wonder how the landlord cashed those checks.
Like the USA, Michael Jackson was a has-been. He hadn't recorded a song worth listening to in over two decades. He had done almost nothing but spin his wheels, hop around the globe from one place to another at enormous expense, and make himself available for award ceremonies to stoke his ego (and give advertisers a reason to promote some televised award show). He existed strictly on image, an anorectic figure nourished by moonbeams of attention, famous for saying that he loved his worshippers when the truth was he merely sucked the life out of them. In his last years, he even looked a bit like Nosferatu, the personification of the un-dead, and his fascination with ghouls was the basis for his biggest hit way back in the last century. A zombie nation deserves a zombie mascot.
He was a poseur, vamping in weird military outfits as though he were a five-star general in the Honduran army, or a character from a melodrama by the reprobate Jean Genet. He once materialized during halftime at the Superbowl in a shower of sparks, thrilling the multitudes while grabbing and stroking his sex organs, as though that was a heroic activity -- and indeed the nation seemed to emulate him as its culture became dedicated more and more to acting out masturbation fantasies. America was a fat man jerking off on the sofa watching a vampire of no particular sex vogue deliriously on the boob tube.
More than once the authorities tried to pin charges of child molestation on him for suspicious activities at his boy-trap, Neverland Ranch, with its carnival rides, private zoo, video game galleries, and inexhaustible supplies of sugary treats. The first time he settled with the alleged victim's family for $22-million. They just walked away with the loot and happily shut up. The second time, he moonwalked out of a court-of-law while weeks later jurors mysteriously went on TV to say, well, they did kind of think after-the-fact that he really did those things he was accused of, but, you know.... The defendant himself behaved as though his trial were a TV celebrity challenge show on another planet, arriving on one occasion twenty minutes late in pajamas with some lame excuse about a backache. He spent the last years of his life wandering a few steps ahead of his creditors, gulling concert promoters into "comeback" schemes (with walking-around money up front), and with three bought-and-paid-for children, obviously not his own, for consolation.
When he dropped dead last week, the nation's morbidly maudlin response suggested a cover story for the relief of being rid of him and all the embarrassment he provoked. One CNN reporter called him a genius the equal of Mozart. That's a little like calling Rachel Maddow the reincarnation of Eleanor Roosevelt. A nation addicted to lying to itself tells itself fairy tales instead of facing a pathology report. Yet, like Michael Jackson, the undertone of horror story still pulses darkly in the background. The little boy who grew up to be the simulation of a girl was really a werewolf. The nation that defeated manifest evil in World War Two woke up one day years later to find itself stripped of its manhood, mentally enslaved to cheap entertainments, and hostage to its own grandiosity. Maybe in grieving so exorbitantly over this freak America is grieving for itself. All the loose talk about "love" from the media and the fans gives off the odor of self-love. America is "the man in the mirror," the gigantic, floundering Narcissus, sailing into the stormy seas of history.
'I'm better off dead. I'm done': Michael Jackson's Fateful Prediction Just a Week Before His Death | Ian Halperin/Daily Mail
Zzzzzz, Obama ...
Earthside Comments: A nation eager for change last November is ending up with a snoozer as our leader. Solid majorities in Congress and high personal popularity are being squandered by Barack Obama and his super-smart advisers for the sake of "pragmatism" and "bipartisanship".
Already, just about seven months into his administration, Obama needs to 'reset' -- get on board single-payer health care reform; dump this corporate-enriching cap-and-trade energy bill; bust up some banks; seek some indictments of Bush and Cheney; propose decriminalization of marijuana and end the 'war on drugs'; get us the hell out of Iraq!
The ridiculous part of this is that what remains of the Republican Party is extreme, steeped in hypocrisy, marginalized, and full of, well, silliness -- yet President Obama and the Congressional Dimocrat 'leaders' still behave as if they are terrified of these losers!
Wake up, Barack and Dimocrats: Americans are still hot for change, and if you won't provide it, then they will start searching in the next election for the people and political party that will.
Obama is Choosing to Be Weak | Clive Crook/Financial Times
As he promised last year, Barack Obama has brought climate change and healthcare reform to the centre of the nation’s attention. As well as evangelising, he is pressing Congress to act. Last week the House of Representatives passed the Waxman-Markey cap-and-trade bill to curb carbon emissions, a measure that, if enacted, would touch every part of the US economy. Both House and Senate have drafted far-reaching healthcare bills, with stunning price tags.Mr Obama aims to keep his promises, which is admirable. Unfortunately, there is a problem. This is not, as many Republicans argue, that neither issue requires forthright action. Both do. The problem is that the bills emerging from Congress are bad and Mr Obama does not seem to mind.
The cap-and-trade bill is a travesty. Its net effect on short- to medium-term carbon emissions will be small to none. This is by design: a law that really made a difference would make energy dearer, hurt consumers and force an economic restructuring that would be painful for many industries and their workers. Congress cannot contemplate those effects. So the Waxman-Markey bill, while going through the complex motions of creating a carbon abatement regime, takes care to neutralise itself.
It proposes safety valves that will ease the cap if it threatens to have a noticeable effect on energy prices. It relies heavily on offsets – theoretical carbon reductions bought from other countries or other industries – so that big US emitters will not need to try so hard. It gives emission permits away, and tells utilities to rebate the windfall to consumers, so their electricity bills do not go up. It creates a vastly complicated apparatus, a playground for special interests and rent-seekers, a minefield of unintended consequences – and the bottom line for all that is business as usual.
If you regard universal access to health insurance as an urgent priority, as I do, the draft healthcare bills are easier to defend as at least a step in the right direction. Nonetheless, the same evasive mindset – the appetite for change without change – has guided their design. If you are happy with your present insurance, the bills’ designers keep telling voters, you will see no difference.
The crux of the US healthcare problem is the incentives that encourage over-production and over-consumption of services. Addressing that would alter the way healthcare is paid for and delivered to all Americans. At that scary prospect, Congress looks away. Debate thus revolves around how much of an increase in coverage you can buy for $1,000bn over 10 years in subsidies and other outlays. That is a good question. But legislators aim to duck the bigger challenge: controlling long-term growth in costs per patient.
On both climate change and healthcare, in other words, the US wills the end but not the means. This is where a president trusted by the electorate and unafraid to explain hard choices would be so valuable. Barack Obama, where are you?
The president has cast himself not as a leader of reform, but as a cheerleader for “reform” – meaning anything, really, that can plausibly be called reform, however flawed. He has defined success down so far that many kinds of failure now qualify. Without hesitating, he has cast aside principles he emphasised during the campaign. On healthcare, for instance, he opposed an individual insurance mandate. On climate change, he was firm on the need to auction all emissions permits. Congress proposes to do the opposite in both cases and Mr Obama’s instant response is: “That will do nicely.”
The White House calls this pragmatism. Never let the best be the enemy of the good. Better to take one step forward than blah, blah, blah. The argument sounds appealing and makes some sense, but is worth probing.
First one must ask whether the bills really do represent progress, however modest. As they stand, this is doubtful, especially in the case of cap-and-trade. Then one must ask whether the US will get to where it needs to be on climate change and healthcare via a series of small steps. Perhaps the country has just one chance in the foreseeable future to get it right. The White House has said as much: “Never let a good crisis go to waste.” Botch these policies this time, and it may be years before Congress can start again.
A White House that is more interested in promotion than in product development has another great drawback: it squanders talent. Mr Obama has impeccable taste in advisers: he has scooped up many of the country’s pre-eminent experts in almost every area of public policy. One wonders why. On the main domestic issues, they are not designing policy; they are working the phones, drumming up support for bills they would be deploring if they were not in the administration. Apart from anything else, this seems cruel. Mr President, examine your conscience and set your experts free.
The greatest waste of talent in all this, however, is that of Mr Obama himself. Congress offers change without change – a green economy built on cheap coal and petrol; a healthcare transformation that asks nobody to pay more taxes or behave any differently – because that is what voters want. Is it too much to ask that Mr Obama should tell voters the truth? I think he could do it. He has everything it takes to be a strong president. He is choosing to be a weak one.
© Copyright The Financial Times Ltd
Saturday, June 27, 2009
Everything to Benefit Goldman Sachs
Here is an article hard to find on the internet (as explained at the link).
It is long, but well worth the read. Towards the end, you will see why we oppose the Obama cap-and-trade energy bill that passed the U.S. House of Representatives yesterday.
The Great American Bubble Machine | Matt Taibbi/Rolling Stone/SomethingAwful.com
From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression - and they're about to do it againThe first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled-dry American empire, reads like a Who's Who of Goldman Sachs graduates.By now, most of us know the major players. As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup - which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the rear end in a top hat chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multibillion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden parachute payments as his bank was self-destructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York - which, incidentally, is now in charge of overseeing Goldman - not to mention ...
But then, any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain - an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.
The bank's unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere - high gas prices, rising consumer-credit rates, half-eaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you're losing, it's going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it's going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth - pure profit for rich individuals.
They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They've been pulling this same stunt over and over since the 1920s - and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.
If you want to understand how we got into this financial crisis, you have to first understand where all the money went - and in order to understand that, you need to understand what Goldman has already gotten away with. It is a history exactly five bubbles long - including last year's strange and seemingly inexplicable spike in the price of oil. There were a lot of losers in each of those bubbles, and in the bailout that followed. But Goldman wasn't one of them.
IF AMERICA IS NOW CIRCLING THE DRAIN, GOLDMAN SACHS HAS FOUND A WAY TO BE THAT DRAIN.
BUBBLE #1 - THE GREAT DEPRESSION
Goldman wasn't always a too-big-to-fail Wall Street behemoth, the ruthless face of kill-or-be-killed capitalism on steroids - just almost always. The bank was actually founded in 1869 by a German immigrant named Marcus Goldman, who built it up with his son-in-law Samuel Sachs. They were pioneers in the use of commercial paper, which is just a fancy way of saying they made money lending out short-term IOUs to small-time vendors in downtown Manhattan.You can probably guess the basic plotline of Goldman's first 100 years in business: plucky, immigrant-led investment bank beats the odds, pulls itself up by its bootstraps, makes shitloads of money. In that ancient history there's really only one episode that bears scrutiny now, in light of more recent events: Goldman's disastrous foray into the speculative mania of pre-crash Wall Street in the late 1920s.
This great Hindenburg of financial history has a few features that might sound familiar. Back then, the main financial tool used to bilk investors was called an "investment trust." Similar to modern mutual funds, the trusts took the cash of investors large and small and (theoretically, at least) invested it in a smorgasbord of Wall Street securities, though the securities and amounts were often kept hidden from the public. So a regular guy could invest $10 or $100 in a trust and feel like he was a big player. Much as in the 1990s, when new vehicles like day trading and e-trading attracted reams of new suckers from the sticks who wanted to feel like big shots, investment trusts roped a new generation of regular-guy investors into the speculation game.
Beginning a pattern that would repeat itself over and over again, Goldman got into the investment-trust game late, then jumped in with both feet and went hog-wild. The first effort was the Goldman Sachs Trading Corporation; the bank issued a million shares at $100 apiece, bought all those shares with its own money and then sold 90 percent of them to the hungry public at $104. The trading corporation then relentlessly bought shares in itself, bidding the price up further and further. Eventually it dumped part of its holdings and sponsored a new trust, the Shenandoah Corporation, issuing millions more in shares in that fund - which in turn sponsored yet another trust called the Blue Ridge Corporation. In this way, each investment trust served as a front for an endless investment pyramid: Goldman hiding behind Goldman hiding behind Goldman. Of the 7,250,000 initial shares of Blue Ridge, 6,250,000 were actually owned by Shenandoah - which, of course, was in large part owned by Goldman Trading.
The end result (ask yourself if this sounds familiar) was a daisy chain of borrowed money, one exquisitely vulnerable to a decline in performance anywhere along the line; The basic idea isn't hard to follow. You take a dollar and borrow nine against it; then you take that $10 fund and borrow $90; then you take your $100 fund and, so long as the public is still lending, borrow and invest $900. If the last fund in the line starts to lose value, you no longer have the money to pay back your investors, and everyone gets massacred.
In a chapter from The Great Crash, 1929 titled "In Goldman Sachs We Trust," the famed economist John Kenneth Galbraith held up the Blue Ridge and Shenandoah trusts as classic examples of the insanity of leverage-based investment. The trusts, he wrote, were a major cause of the market's historic crash; in today's dollars, the losses the bank suffered totaled $475 billion. "It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity," Galbraith observed, sounding like Keith Olbermann in an ascot. "If there must be madness, something may be said for having it on a heroic scale."
BUBBLE #2 - TECH STOCKS
Fast-Forward about 65 years. Goldman not only survived the crash that wiped out so many of the investors it duped, it went on to become the chief underwriter to the country's wealthiest and most powerful corporations. Thanks to Sidney Weinberg, who rose from the rank of janitor's assistant to head the firm, Goldman became the pioneer of the initial public offering, one of the principal and most lucrative means by which companies raise money. During the 1970s and 1980s, Goldman may not have been the planet-eating Death Star of political influence it is today, but it was a top-drawer firm that had a reputation for attracting the very smartest talent on the Street.It also, oddly enough, had a reputation for relatively solid ethics and a patient approach to investment that shunned the fast buck; its executives were trained to adopt the firm's mantra, "long-term greedy." One former Goldman banker who left the firm in the early Nineties recalls seeing his superiors give up a very profitable deal on the grounds that it was a long-term loser. "We gave back money to 'grownup' corporate clients who had made bad deals with us," he says. "Everything we did was legal and fair - but 'long-term greedy' said we didn't want to make such a profit at the clients' collective expense that we spoiled the marketplace."
But then, something happened. It's hard to say what it was exactly; it might have been the fact that Goldman's co-chairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. While the American media fell in love with the story line of a pair of baby-boomer, Sixties-child, Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised crush on Rubin, who was hyped as without a doubt the smartest person ever to walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far behind.
Rubin was the prototypical Goldman banker. He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nightmare about being forced to fly coach. It became almost a national cliche that whatever Rubin thought was best for the economy - a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline THE COMMITTEE TO SAVE THE WORLD. And "what Rubin thought," mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. During his tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy - beginning with Rubin's complete and total failure to regulate his old firm during its first mad dash for obscene short-term profits.
The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren't much more than pot-fueled ideas scrawled on napkins by up-too-late bong-smokers were taken public via IPOs, hyped in the media and sold to the public for mega-millions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.
It sounds obvious now, but what the average investor didn't know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system - one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman's later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry's standards of quality control.
"Since the Depression, there were strict underwriting guidelines that Wall Street adhered to when taking a company public," says one prominent hedge-fund manager. "The company had to be in business for a minimum of five years, and it had to show profitability for three consecutive years. But Wall Street took these guidelines and threw them in the trash." Goldman completed the snow job by pumping up the sham stocks: "Their analysts were out there saying Bullshit.com is worth $100 a share."
The problem was, nobody told investors that the rules had changed. "Everyone on the inside knew," the manager says. "Bob Rubin sure as hell knew what the underwriting standards were. They'd been intact since the 1930s."
Jay Ritter, a professor of finance at the University of Florida who specializes in IPOs, says banks like Goldman knew full well that many of the public offerings they were touting would never make a dime. "In the early Eighties, the major underwriters insisted on three years of profitability. Then it was one year, then it was a quarter. By the time of the Internet bubble, they were not even requiring profitability in the foreseeable future."
Goldman has denied that it changed its underwriting standards during the Internet years, but its own statistics belie the claim. Just as it did with the investment trust in the 1920s, Goldman started slow and finished crazy in the Internet years. After it took a little-known company with weak financials called Yahoo! public in 1996, once the tech boom had already begun, Goldman quickly became the IPO king of the Internet era. Of the 24 companies it took public in 1997, a third were losing money at the time of the IPO. In 1999, at the height of the boom, it took 47 companies public, including stillborns like Webvan and eToys, investment offerings that were in many ways the modern equivalents of Blue Ridge and Shenandoah. The following year, it underwrote 18 companies in the first four months, 14 of which were money losers at the time. As a leading underwriter of Internet stocks during the boom, Goldman provided profits far more volatile than those of its competitors: In 1999, the average Goldman IPO leapt 281 percent above its offering price, compared to the Wall Street average of 181 percent.
How did Goldman achieve such extraordinary results? One answer is that they used a practice called "laddering," which is just a fancy way of saying they manipulated the share price of new offerings. Here's how it works: Say you're Goldman Sachs, and Bullshit.com comes to you and asks you to take their company public. You agree on the usual terms: You'll price the stock, determine how many shares should be released and take the Bullshit.com CEO on a "road show" to schmooze investors, all in exchange for a substantial fee (typically six to seven percent of the amount raised). You then promise your best clients the right to buy big chunks of the IPO at the low offering price - let's say Bullshit.com's starting share price is $15 - in exchange for a promise that they will buy more shares later on the open market. That seemingly simple demand gives you inside knowledge of the IPO's future, knowledge that wasn't disclosed to the day-trader schmucks who only had the prospectus to go by: You know that certain of your clients who bought X amount of shares at $15 are also going to buy Y more shares at $20 or $25, virtually guaranteeing that the price is going to go to $25 and beyond. In this way, Goldman could artificially jack up the new company's price, which of course was to the bank's benefit - a six percent fee of a $500 million IPO is serious money.
Goldman was repeatedly sued by shareholders for engaging in laddering in a variety of Internet IPOs, including Webvan and NetZero. The deceptive practices also caught the attention of Nichol as Maier, the syndicate manager of Cramer & Co., the hedge fund run at the time by the now-famous chattering television rear end in a top hat Jim Cramer, himself a Goldman alum. Maier told the SEC that while working for Cramer between 1996 and 1998, he was repeatedly forced to engage in laddering practices during IPO deals with Goldman.
"Goldman, from what I witnessed, they were the worst perpetrator," Maier said. "They totally fueled the bubble. And it's specifically that kind of behavior that has caused the market crash. They built these stocks upon an illegal foundation - manipulated up - and ultimately, it really was the small person who ended up buying in." In 2005, Goldman agreed to pay $40 million for its laddering violations - a puny penalty relative to the enormous profits it made. (Goldman, which has denied wrongdoing in all of the cases it has settled, refused to respond to questions for this story.)
Another practice Goldman engaged in during the Internet boom was "spinning," better known as bribery. Here the investment bank would offer the executives of the newly public company shares at extra-low prices, in exchange for future underwriting business. Banks that engaged in spinning would then undervalue the initial offering price - ensuring that those "hot" opening price shares it had handed out to insiders would be more likely to rise quickly, supplying bigger first-day rewards for the chosen few. So instead of Bullshit.com opening at $20, the bank would approach the Bullshit.com CEO and offer him a million shares of his own company at $18 in exchange for future business - effectively robbing all of Bullshit's new shareholders by diverting cash that should have gone to the company's bottom line into the private bank account of the company's CEO.
In one case, Goldman allegedly gave a multimillion-dollar special offering to eBay CEO Meg Whitman, who later joined Goldman's board, in exchange for future i-banking business. According to a report by the House Financial Services Committee in 2002, Goldman gave special stock offerings to executives in 21 companies that it took public, including Yahoo! co-founder Jerry Yang and two of the great slithering villains of the financial-scandal age - Tyco's Dennis Kozlowski and Enron's Ken Lay. Goldman angrily denounced the report as "an egregious distortion of the facts" - shortly before paying $110 million to settle an investigation into spinning and other manipulations launched by New York state regulators. "The spinning of hot IPO shares was not a harmless corporate perk," then-attorney general Eliot Spitzer said at the time. "Instead, it was an integral part of a fraudulent scheme to win new investment-banking business."
Such practices conspired to turn the Internet bubble into one of the greatest financial disasters in world history: Some $5 trillion of wealth was wiped out on the NASDAQ alone. But the real problem wasn't the money that was lost by shareholders, it was the money gained by investment bankers, who received hefty bonuses for tampering with the market. Instead of teaching Wall Street a lesson that bubbles always deflate, the Internet years demonstrated to bankers that in the age of freely flowing capital and publicly owned financial companies, bubbles are incredibly easy to inflate, and individual bonuses are actually bigger when the mania and the irrationality are greater.
GOLDMAN SCAMMED HOUSING INVESTORS BY BETTING AGAINST ITS OWN CRAPPY MORTGAGES.
Nowhere was this truer than at Goldman. Between 1999 and 2002, the firm paid out $28.5 billion in compensation and benefits - an average of roughly $350,000 a year per employee. Those numbers are important because the key legacy of the Internet boom is that the economy is now driven in large part by the pursuit of the enormous salaries and bonuses that such bubbles make possible. Goldman's mantra of "long-term greedy" vanished into thin air as the game became about getting your check before the melon hit the pavement.
The market was no longer a rationally managed place to grow real, profitable businesses: It was a huge ocean of Someone Else's Money where bankers hauled in vast sums through whatever means necessary and tried to convert that money into bonuses and payouts as quickly as possible. If you laddered and spun 50 Internet IPOs that went bust within a year, so what? By the time the Securities and Exchange Commission got around to fining your firm $110 million, the yacht you bought with your IPO bonuses was already six years old. Besides, you were probably out of Goldman by then, running the U.S. Treasury or maybe the state of New Jersey. (One of the truly comic moments in the history of America's recent financial collapse came when Gov. Jon Corzine of New Jersey, who ran Goldman from 1994 to 1999 and left with $320 million in IPO-fattened stock, insisted in 2002 that "I've never even heard the term 'laddering' before.")
For a bank that paid out $7 billion a year in salaries, $110 million fines issued half a decade late were something far less than a deterrent - they were a joke. Once the Internet bubble burst, Goldman had no incentive to reassess its new, profit-driven strategy; it just searched around for another bubble to inflate. As it turns out, it had one ready, thanks in large part to Rubin.
BUBBLE #3 - THE HOUSING CRAZE
Goldman's role in the sweeping disaster that was the housing bubble is not hard to trace. Here again, the basic trick was a decline in underwriting standards, although in this case the standards weren't in IPOs but in mortgages. By now almost everyone knows that for decades mortgage dealers insisted that home buyers be able to produce a down payment of 10 percent or more, show a steady income and good credit rating, and possess a real first and last name. Then, at the dawn of the new millennium, they suddenly threw all that poo poo out the window and started writing mortgages on the backs of napkins to cocktail waitresses and ex-cons carrying five bucks and a Snickers bar.None of that would have been possible without investment bankers like Goldman, who created vehicles to package those lovely mortgages and sell them en masse to unsuspecting insurance companies and pension funds. This created a mass market for toxic debt that would never have existed before; in the old days, no bank would have wanted to keep some addict ex-con's mortgage on its books, knowing how likely it was to fail. You can't write these mortgages, in other words, unless you can sell them to someone who doesn't know what they are.
Goldman used two methods to hide the mess they were selling. First, they bundled hundreds of different mortgages into instruments called Collateralized Debt Obligations. Then they sold investors on the idea that, because a bunch of those mortgages would turn out to be OK, there was no reason to worry so much about the lovely ones: The CDO, as a whole, was sound. Thus, junk-rated mortgages were turned into AAA-rated investments. Second, to hedge its own bets, Goldman got companies like AIG to provide insurance - known as credit-default swaps - on the CDOs. The swaps were essentially a racetrack bet between AIG and Goldman: Goldman is betting the ex-cons will default, AIG is betting they won't.
There was only one problem with the deals: All of the wheeling and dealing represented exactly the kind of dangerous speculation that federal regulators are supposed to rein in. Derivatives like CDOs and credit swaps had already caused a series of serious financial calamities: Procter & Gamble and Gibson Greetings both lost fortunes, and Orange County, California, was forced to default in 1994. A report that year by the Government Accountability Office recommended that such financial instruments be tightly regulated - and in 1998, the head of the Commodity Futures Trading Commission, a woman named Brooksley Born, agreed. That May, she circulated a letter to business leaders and the Clinton administration suggesting that banks be required to provide greater disclosure in derivatives trades, and maintain reserves to cushion against losses.
More regulation wasn't exactly what Goldman had in mind. "The banks go crazy - they want it stopped," says Michael Greenberger, who worked for Born as director of trading and markets at the CFTC and is now a law professor at the University of Maryland. "Greenspan, Summers, Rubin and [SEC chief Arthur] Levitt want it stopped."
Clinton's reigning economic foursome - "especially Rubin," according to Greenberger - called Born in for a meeting and pleaded their case. She refused to back down, however, and continued to push for more regulation of the derivatives. Then, in June 1998, Rubin went public to denounce her move, eventually recommending that Congress strip the CFTC of its regulatory authority. In 2000, on its last day in session, Congress passed the now-notorious Commodity Futures Modernization Act, which had been inserted into an 1l,000-page spending bill at the last minute, with almost no debate on the floor of the Senate. Banks were now free to trade default swaps with impunity.
But the story didn't end there. AIG, a major purveyor of default swaps, approached the New York State Insurance Department in 2000 and asked whether default swaps would be regulated as insurance. At the time, the office was run by one Neil Levin, a former Goldman vice president, who decided against regulating the swaps. Now freed to underwrite as many housing-based securities and buy as much credit-default protection as it wanted, Goldman went berserk with lending lust. By the peak of the housing boom in 2006, Goldman was underwriting $76.5 billion worth of mortgage-backed securities - a third of which were subprime - much of it to institutional investors like pensions and insurance companies. And in these massive issues of real estate were vast swamps of crap.
Take one $494 million issue that year, GSAMP Trust 2006-S3. Many of the mortgages belonged to second-mortgage borrowers, and the average equity they had in their homes was 0.71 percent. Moreover, 58 percent of the loans included little or no documentation - no names of the borrowers, no addresses of the homes, just zip codes. Yet both of the major ratings agencies, Moody's and Standard & Poor's, rated 93 percent of the issue as investment grade. Moody's projected that less than 10 percent of the loans would default. In reality, 18 percent of the mortgages were in default within 18 months.
Not that Goldman was personally at any risk. The bank might be taking all these hideous, completely irresponsible mortgages from beneath-gangster-status firms like Countrywide and selling them off to municipalities and pensioners - old people, for God's sake - pretending the whole time that it wasn't grade-D horseshit. But even as it was doing so, it was taking short positions in the same market, in essence betting against the same crap it was selling. Even worse, Goldman bragged about it in public. "The mortgage sector continues to be challenged," David Viniar, the bank's chief financial officer, boasted in 2007. "As a result, we took significant markdowns on our long inventory positions .... However, our risk bias in that market was to be short, and that net short position was profitable." In other words, the mortgages it was selling were for chumps. The real money was in betting against those same mortgages.
"That's how audacious these assholes are," says one hedge-fund manager. "At least with other banks, you could say that they were just dumb - they believed what they were selling, and it blew them up. Goldman knew what it was doing." I ask the manager how it could be that selling something to customers that you're actually betting against - particularly when you know more about the weaknesses of those products than the customer - doesn't amount to securities fraud.
"It's exactly securities fraud," he says. "It's the heart of securities fraud."
Eventually, lots of aggrieved investors agreed. In a virtual repeat of the Internet IPO craze, Goldman was hit with a wave of lawsuits after the collapse of the housing bubble, many of which accused the bank of withholding pertinent information about the quality of the mortgages it issued. New York state regulators are suing Goldman and 25 other underwriters for selling bundles of crappy Countrywide mortgages to city and state pension funds, which lost as much as $100 million in the investments. Massachusetts also investigated Goldman for similar misdeeds, acting on behalf of 714 mortgage holders who got stuck ho1ding predatory loans. But once again, Goldman got off virtually scot-free, staving off prosecution by agreeing to pay a paltry $60 million - about what the bank's CDO division made in a day and a half during the real estate boom.
The effects of the housing bubble are well known - it led more or less directly to the collapse of Bear Stearns, Lehman Brothers and AIG, whose toxic portfolio of credit swaps was in significant part composed of the insurance that banks like Goldman bought against their own housing portfolios. In fact, at least $13 billion of the taxpayer money given to AIG in the bailout ultimately went to Goldman, meaning that the bank made out on the housing bubble twice: It hosed the investors who bought their horseshit CDOs by betting against its own crappy product, then it turned around and hosed the taxpayer by making him payoff those same bets.
And once again, while the world was crashing down all around the bank, Goldman made sure it was doing just fine in the compensation department. In 2006, the firm's payroll jumped to $16.5 billion - an average of $622,000 per employee. As a Goldman spokesman explained, "We work very hard here."
But the best was yet to come. While the collapse of the housing bubble sent most of the financial world fleeing for the exits, or to jail, Goldman boldly doubled down - and almost single-handedly created yet another bubble, one the world still barely knows the firm had anything to do with.
BUBBLE #4 - $4 A GALLON
By the beginning of 2008, the financial world was in turmoil. Wall Street had spent the past two and a half decades producing one scandal after another, which didn't leave much to sell that wasn't tainted. The terms junk bond, IPO, subprime mortgage and other once-hot financial fare were now firmly associated in the public's mind with scams; the terms credit swaps and CDOs were about to join them. The credit markets were in crisis, and the mantra that had sustained the fantasy economy throughout the Bush years - the notion that housing prices never go down - was now a fully exploded myth, leaving the Street clamoring for a new bullshit paradigm to sling.Where to go? With the public reluctant to put money in anything that felt like a paper investment, the Street quietly moved the casino to the physical-commodities market - stuff you could touch: corn, coffee, cocoa, wheat and, above all, energy commodities, especially oil. In conjunction with a decline in the dollar, the credit crunch and the housing crash caused a "flight to commodities." Oil futures in particular skyrocketed, as the price of a single barrel went from around $60 in the middle of 2007 to a high of $147 in the summer of 2008.
That summer, as the presidential campaign heated up, the accepted explanation for why gasoline had hit $4.11 a gallon was that there was a problem with the world oil supply. In a classic example of how Republicans and Democrats respond to crises by engaging in fierce exchanges of moronic irrelevancies, John McCain insisted that ending the moratorium on offshore drilling would be "very helpful in the short term," while Barack Obama in typical liberal-arts yuppie style argued that federal investment in hybrid cars was the way out.
GOLDMAN TURNED A SLEEPY OIL MARKET INTO A GIANT BETTING PARLOR - SPIKING PRICES AT THE PUMP.
But it was all a lie. While the global supply of oil will eventually dry up, the short-term flow has actually been increasing. In the six months before prices spiked, according to the U.S. Energy Information Administration, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped from 86.82 million barrels a day to 86.07 million. Not only was the short-term supply of oil rising, the demand for it was falling - which, in classic economic terms, should have brought prices at the pump down.
So what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help - there were other players in the physical-commodities market - but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures - agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.
As is so often the case, there had been a Depression-era law in place designed specifically to prevent this sort of thing. The commodities market was designed in large part to help farmers: A grower concerned about future price drops could enter into a contract to sell his corn at a certain price for delivery later on, which made him worry less about building up stores of his crop. When no one was buying corn, the farmer could sell to a middleman known as a "traditional speculator," who would store the grain and sell it later, when demand returned. That way, someone was always there to buy from the farmer, even when the market temporarily had no need for his crops.
In 1936, however, Congress recognized that there should never be more speculators in the market than real producers and consumers. If that happened, prices would be affected by something other than supply and demand, and price manipulations would ensue. A new law empowered the Commodity Futures Trading Commission - the very same body that would later try and fail to regulate credit swaps - to place limits on speculative trades in commodities. As a result of the CFTC's oversight, peace and harmony reigned in the commodities markets for more than 50 years.
All that changed in 1991 when, unbeknownst to almost everyone in the world, a Goldman-owned commodities-trading subsidiary called J. Aron wrote to the CFTC and made an unusual argument. Farmers with big stores of corn, Goldman argued, weren't the only ones who needed to hedge their risk against future price drops - Wall Street dealers who made big bets on oil prices also needed to hedge their risk, because, well, they stood to lose a lot too.
This was complete and utter crap - the 1936 law, remember, was specifically designed to maintain distinctions between people who were buying and selling real tangible stuff and people who were trading in paper alone. But the CFTC, amazingly, bought Goldman's argument. It issued the bank a free pass, called the "Bona Fide Hedging" exemption, allowing Goldman's subsidiary to call itself a physical hedger and escape virtually all limits placed on speculators. In the years that followed, the commission would quietly issue 14 similar exemptions to other companies.
Now Goldman and other banks were free to drive more investors into the commodities markets, enabling speculators to place increasingly big bets. That 1991 letter from Goldman more or less directly led to the oil bubble in 2008, when the number of speculators in the market - driven there by fear of the falling dollar and the housing crash - finally overwhelmed the real physical suppliers and consumers. By 2008, at least three quarters of the activity on the commodity exchanges was speculative, according to a congressional staffer who studied the numbers - and that's likely a conservative estimate. By the middle of last summer, despite rising supply and a drop in demand, we were paying $4 a gallon every time we pulled up to the pump.
What is even more amazing is that the letter to Goldman, along with most of the other trading exemptions, was handed out more or less in secret. "I was the head of the division of trading and markets, and Brooksley Born was the chair of the CFTC," says Greenberger, "and neither of us knew this letter was out there." In fact, the letters only came to light by accident. Last year, a staffer for the House Energy and Commerce Committee just happened to be at a briefing when officials from the CFTC made an offhand reference to the exemptions.
"I had been invited to a briefing the commission was holding on energy," the staffer recounts. "And suddenly in the middle of it, they start saying, 'Yeah, we've been issuing these letters for years now.' I raised my hand and said, 'Really? You issued a letter? Can I see it?' And they were like, 'Duh, duh.' So we went back and forth, and finally they said, 'We have to clear it with Goldman Sachs.' I'm like, 'What do you mean, you have to clear it with Goldman Sachs?'"
The CFTC cited a rule that prohibited it from releasing any information about a company's current position in the market. But the staffer's request was about a letter that had been issued 17 years earlier. It no longer had anything to do with Goldman's current position. What's more, Section 7 of the 1936 commodities law gives Congress the right to any information it wants from the commission. Still, in a classic example of how complete Goldman's capture of government is, the CFTC waited until it got clearance from the bank before it turned the letter over.
Armed with the semi-secret government exemption, Goldman had become the chief designer of a giant commodities betting parlor. Its Goldman Sachs Commodities Index - which tracks the prices of 24 major commodities but is overwhelmingly weighted toward oil - became the place where pension funds and insurance companies and other institutional investors could make massive long-term bets on commodity prices. Which was all well and good, except for a couple of things. One was that index speculators are mostly "long only" bettors, who seldom if ever take short positions - meaning they only bet on prices to rise. While this kind of behavior is good for a stock market, it's terrible for commodities, because it continually forces prices upward. "If index speculators took short positions as well as long ones, you'd see them pushing prices both up and down," says Michael Masters, a hedge-fund manager who has helped expose the role of investment banks in the manipulation of oil prices. "But they only push prices in one direction: up."
Complicating matters even further was the fact that Goldman itself was cheerleading with all its might for an increase in oil prices. In the beginning of 2008, Arjun Murti, a Goldman analyst, hailed as an "oracle of oil" by The New York Times, predicted a "super spike" in oil prices, forecasting a rise to $200 a barrel. At the time Goldman was heavily invested in oil through its commodities-trading subsidiary, J. Aron; it also owned a stake in a major oil refinery in Kansas, where it warehoused the crude it bought and sold. Even though the supply of oil was keeping pace with demand, Murti continually warned of disruptions to the world oil supply, going so far as to broadcast the fact that he owned two hybrid cars. High prices, the bank insisted, were somehow the fault of the piggish American consumer; in 2005, Goldman analysts insisted that we wouldn't know when oil prices would fall until we knew "when American consumers will stop buying gas-guzzling sport utility vehicles and instead seek fuel-efficient alternatives."
But it wasn't the consumption of real oil that was driving up prices - it was the trade in paper oil. By the summer of2008, in fact, commodities speculators had bought and stockpiled enough oil futures to fill 1.1 billion barrels of crude, which meant that speculators owned more future oil on paper than there was real, physical oil stored in all of the country's commercial storage tanks and the Strategic Petroleum Reserve combined. It was a repeat of both the Internet craze and the housing bubble, when Wall Street jacked up present-day profits by selling suckers shares of a fictional fantasy future of endlessly rising prices.
In what was by now a painfully familiar pattern, the oil-commodities melon hit the pavement hard in the summer of 2008, causing a massive loss of wealth; crude prices plunged from $147 to $33. Once again the big losers were ordinary people. The pensioners whose funds invested in this crap got massacred: CalPERS, the California Public Employees' Retirement System, had $1.1 billion in commodities when the crash came. And the damage didn't just come from oil. Soaring food prices driven by the commodities bubble led to catastrophes across the planet, forcing an estimated 100 million people into hunger and sparking food riots throughout the Third World.
Now oil prices are rising again: They shot up 20 percent in the month of May and have nearly doubled so far this year. Once again, the problem is not supply or demand. "The highest supply of oil in the last 20 years is now," says Rep. Bart Stupak, a Democrat from Michigan who serves on the House energy committee. "Demand is at a 10-year low. And yet prices are up."
Asked why politicians continue to harp on things like drilling or hybrid cars, when supply and demand have nothing to do with the high prices, Stupak shakes his head. "I think they just don't understand the problem very well," he says. "You can't explain it in 30 seconds, so politicians ignore it."
BUBBLE #5 - RIGGING THE BAILOUT
After the oil bubble collapsed last fall, there was no new bubble to keep things humming - this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers - one of Goldman's last real competitors - collapse without intervention. ("Goldman's superhero status was left intact," says market analyst Eric Salzman, "and an investment-banking competitor, Lehman, goes away.") The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.
Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year-old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bankholding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding - most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs - and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.
Converting to a bank-holding company has other benefits as well: Goldman's primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict-of-interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank-holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman - New York Fed president William Dudley - is yet another former Goldmanite.
The collective message of all this - the AIG bailout, the swift approval for its bank-holding conversion, the TARP funds - is that when it comes to Goldman Sachs, there isn't a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. "In the past it was an implicit advantage," says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. "Now it's more of an explicit advantage."
Once the bailouts were in place, Goldman went right back to business as usual, dreaming up impossibly convoluted schemes to pick the American carcass clean of its loose capital. One of its first moves in the post-bailout era was to quietly push forward the calendar it uses to report its earnings, essentially wiping December 2008 - with its $1.3 billion in pretax losses - off the books. At the same time, the bank announced a highly suspicious $1.8 billion profit for the first quarter of 2009 - which apparently included a large chunk of money funneled to it by taxpayers via the AIG bailout. "They cooked those first-quarter results six ways from Sunday," says one hedge-fund manager. "They hid the losses in the orphan month and called the bailout money profit."
Two more numbers stand out from that stunning first-quarter turnaround. The bank paid out an astonishing $4.7 billion in bonuses and compensation in the first three months of this year, an 18 percent increase over the first quarter of 2008. It also raised $5 billion by issuing new shares almost immediately after releasing its first-quarter results. Taken together, the numbers show that Goldman essentially borrowed a $5 billion salary payout for its executives in the middle of the global economic crisis it helped cause, using half-baked accounting to reel in investors, just months after receiving billions in a taxpayer bailout.
Even more amazing, Goldman did it all right before the government announced the results of its new "stress test" for banks seeking to repay TARP money - suggesting that Goldman knew exactly what was coming. The government was trying to carefully orchestrate the repayments in an effort to prevent further trouble at banks that couldn't pay back the money right away. But Goldman blew off those concerns, brazenly flaunting its insider status. "They seemed to know everything that they needed to do before the stress test came out, unlike everyone else, who had to wait until after," says Michael Hecht, a managing director of JMP Securities. "The government came out and said, 'To pay back TARP, you have to issue debt of at least five years that is not insured by FDIC - which Goldman Sachs had already done, a week or two before."
And here's the real punch line. After playing an intimate role in four historic bubble catastrophes, after helping $5 trillion in wealth disappear from the NASDAQ, after pawning off thousands of toxic mortgages on pensioners and cities, after helping to drive the price of gas up to $4 a gallon and to push 100 million people around the world into hunger, after securing tens of billions of taxpayer dollars through a series of bailouts overseen by its former CEO, what did Goldman Sachs give back to the people of the United States in 2008?
Fourteen million dollars.
That is what the firm paid in taxes in 2008, an effective tax rate of exactly one, read it, one percent. The bank paid out $10 billion in compensation and benefits that same year and made a profit of more than $2 billion - yet it paid the Treasury less than a third of what it forked over to CEO Lloyd Blankfein, who made $42.9 million last year.
How is this possible? According to Goldman's annual report, the low taxes are due in large part to changes in the bank's "geographic earnings mix." In other words, the bank moved its money around so that most of its earnings took place in foreign countries with low tax rates. Thanks to our completely hosed corporate tax system, companies like Goldman can ship their revenues offshore and defer taxes on those revenues indefinitely, even while they claim deductions upfront on that same untaxed income. This is why any corporation with an at least occasionally sober accountant can usually find a way to zero out its taxes. A GAO report, in fact, found that between 1998 and 2005, roughly two-thirds of all corporations operating in the U.S. paid no taxes at all.
This should be a pitchfork-level outrage - but somehow, when Goldman released its post-bailout tax profile, hardly anyone said a word. One of the few to remark on the obscenity was Rep. Lloyd Doggett, a Democrat from Texas who serves on the House Ways and Means Committee. "With the right hand out begging for bailout money," he said, "the left is hiding it offshore."
BUBBLE #6 - GLOBAL WARMING
Fast-Forward to today. It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs - its employees paid some $981,000 to his campaign - sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.AS ENVISIONED BY GOLDMAN, THE FIGHT TO STOP GLOBAL WARMING WILL BECOME A "CARBON MARKET" WORTH $1 TRILLION A YEAR.
Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's co-head of finance) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits - a booming trillion-dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade.
The new carbon-credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.
Here's how it works: If the bill passes; there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy "allocations" or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billions worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.
The feature of this plan that has special appeal to speculators is that the "cap" on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand-new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison's sake, the annual combined revenues of an electricity suppliers in the U.S. total $320 billion.
Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigm-shifting legislation, (2) make sure that they're the profit-making slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for cap-and-trade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank's environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Paulson's report argued that "voluntary action alone cannot solve the climate-change problem." A few years later, the bank's carbon chief, Ken Newcombe, insisted that cap-and-trade alone won't be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that 'Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies) and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time, "We're not making those investments to lose money."
The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utah-based firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There's also a $500 million Green Growth Fund set up by a Goldmanite to invest in green-tech ... the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energy-futures market?
"Oh, it'll dwarf it," says a former staffer on the House energy committee.
Well, you might say, who cares? If cap-and-trade succeeds, won't we all be saved from the catastrophe of global warming? Maybe - but cap-and-trade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax-collection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it's even collected.
"If it's going to be a tax, I would prefer that Washington set the tax and collect it," says Michael Masters, the hedge fund director who spoke out against oil-futures speculation. "But we're saying that Wall Street can set the tax, and Wall Street can collect the tax. That's the last thing in the world I want. It's just asinine."
Cap-and-trade is going to happen. Or, if it doesn't, something like it will. The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees - while the actual victims in this mess, ordinary taxpayers, are the ones paying for it.
It's not always easy to accept the reality of what we now routinely allow these people to get away with; there's a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can't really register the fact that you're no longer a citizen of a thriving first-world democracy, that you're no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there.
But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It's a gangster state, running on gangster economics, and even prices can't be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can't stop it, but we should at least know where it's all going.
Thursday, June 25, 2009
The 'Public Option' for Campaigns
Earthside Comments: Until this country steps up and installs public financing of election campaigns, genuine reform in health care, the banking sector, the military, and education, will never really happen.
The spotlight now is on health care reform ... and the influence of big campaign contributions to Senators and Representatives is on the verge of killing this vitally necessary change once again.
The monetary price we would pay to bring real democracy and representation to government would pale beside the benefits we would accrue from honest debate and decisions based on the true will of the people.
Both major political parties are completely in the tank to the current process that is, for all intents and purposes, legalized bribery. We encourage you to examine third parties that vigorously support the concept of public financing of elections -- registering as a Green Party voter, for example, will send a loud and clear message to Dimocrats that there will be for them a price to be paid if the big money from big pharma kills meaningful health care reform this year.
The Sickening Influence of Campaign Contributions | Joe Conason/TruthDig.com
If Congress fails to enact health care reform this year—or if it enacts a sham reform designed to bail out corporate medicine while excluding the “public option”—then the public will rightly blame Democrats, who have no excuse for failure except their own cowardice and corruption. The punishment inflicted by angry voters is likely to be reduced majorities in both the Senate and the House of Representatives—or even the restoration of Republican rule on Capitol Hill.Many of those now talking down President Obama’s health care initiative were in Washington back in 1994 when Bill Clinton’s proposals to achieve universal coverage were killed by members of the president’s own party. The Democrats lost control of Congress that November in a historic repudiation, largely because of public disillusionment with their policy failures.
Nearly every poll now shows the American people demanding change in the health care system, with majorities favoring universal coverage and, in many surveys, a government plan that competes with private insurance. But powerful Democratic politicians, especially in the Senate, are pretending not to hear. They adopt all sorts of positions, from bluntly opposing any substantive change this year to promoting bogus alternatives. They claim to be trying to help Obama gather the votes he will need, or to assist him in attracting Republican votes. They insist that the country can’t afford universal care, or that the public option won’t pass (before debate has even begun).
Indeed, many of the most intransigent Democrats don’t bother to make actual arguments to support their position. Nor do they seem to worry that Democratic voters and the party’s main constituencies overwhelmingly support the public option and universal coverage.
Sen. Mary Landrieu, D-La., has simply stated, through her flack, that she refuses to support a public option. Sen. Ron Wyden, D-Ore., who has tried to fashion a plan that will entice Republicans, warns that the public option is a step toward single-payer health care—not much of an objection to a model that serves people in every other industrialized country with lower costs and superior outcomes. Sen. Dianne Feinstein, D-Calif., feebly protests that her state’s mismanagement by a Republican governor must stall the progress of the rest of the country. Sen. Kent Conrad, D-N.D., says he has a better plan involving regional cooperatives, which would be unable to effectively compete with the insurance behemoths or bargain with pharmaceutical giants.
The excuses sound different, but all of these lawmakers have something in common—namely, their abject dependence on campaign contributions from the insurance and pharmaceutical corporations fighting against real reform. Consider Landrieu, a senator from a very poor state whose working-class constituents badly need universal coverage (and many of whom now depend on Medicare, a popular government program). According to the Center for Responsive Politics, a nonpartisan watchdog outfit, she has received nearly $1.7 million from corporate medical interests, including hospitals, insurance companies, nursing homes and drug firms, during her political career.
The same kind of depressing figures can be found in the campaign filings of many of the Democrats now posing as obstacles to reform, notably including Sen. Max Baucus, D-Mont., the chairman of the Senate Finance Committee, who has distinguished himself in the most appalling way. The Montana Standard, a news outlet in his home state, found that Baucus has received more campaign money from health and insurance industry donors than any other member of Congress. “In the past six years,” the Standard found, “nearly one-fourth of every dime raised by the Montana senator and his political-action committee has come from groups and individuals associated with drug companies, insurers, hospitals, medical-supply firms, health-service companies and other health professionals.”
Whenever Democratic politicians are confronted with this conflict between the public interest and their private fund-raising, they take offense at the implied insult. They protest, as a spokesman for Sen. Landrieu did, that they make policy decisions based on what is best for the people of their states, “not campaign contributions.” But when health reform fails, or turns into a trough for their contributors, who will believe them? And who will vote for them?
Copyright © 2009 Truthdig
© 2009 Creators Syndicate Inc.
Moment of Truth for Obama and the Democrats | Theda Skocpol/Talking Points Memo/CommonDreams.org
Wednesday, June 24, 2009
Our Grim Future
Earthside Comments: This post is an example of what we think Earthside does best: connects the dots.
While it may appear that there is a lot to peruse below, the two articles are important and draw a stark picture of our grim future ... it's a fast read.
First, analysis of where we are as a nation; second, where we may be going.
Consider these two headlines when reading the first essay: "Goldman Sachs plans nearly $1 billion in bonuses after bailout" and "Citi to boost employees' base pay by up to 50 percent". After all that we've been told and gone through since last September, that the bankers have staged a coup d'etat and are now running the country seems beyond dispute. Along this line, also consider the implications of this little nugget of profundity:
Transcript - EconomyInCrisis.org
Oligarchs being oligarchs, we can expect then the future outlined in the second piece -- unless there is an unexpected event that precipitates a sudden crash -- the 'devolution' of our middle class society seems the most likely scenario. Somehow, due to our mind-numbing entertainment culture and our dumbed-down schooling system, we just don't see a 'people's revolt' arising out of America's heartland. The vast majority of U.S. citizens have been conditioned to accept government decrees as 'social progress' or to take submissive solace in the fact that they have a gun in the closet to use when the government finally comes for them (it will never have to).
The Obama-Bush continuum to central control of every aspect of our lives for the benefit of the mega-transnational corporations is right on track.
Why America is a Bank-Owned State | Samah El-Shahat/Al Jazeera
In my last column I introduced the idea that America's handling of the financial crisis, and in particular the way it has refused to deal with the banks, is more in keeping with how an "emerging" economy might behave and act.
So this week, I will say that America has become a bank-owned state, allowing its banking oligarchs to suffocate the economy so they can survive at any price.
As a development economist, what always made developing and poorer countries stand out was the level of inequality between individuals.
That is, the difference between how a small percentage, usually the country's capitalists, oligarchs and those close to people in power, were overdosing on wealth as the rest struggled to make ends meet, or even survive.
Everyone in the country knew it, from the poorest farmer on the street to the richest oligarch. It was in your face, unashamed, unabated and highly discomforting.
Discomforting because it made all of us who witnessed it feel crippled at the power of the status quo, ruing the unfairness of life when merit always comes last, relative to who you know and who you are.
We took some relief from believing that this only happens because these countries were authoritarian, and not so accountable to their electorate.
Yet, if we look closer at the leading capitalist economies such as those of America and the UK, we will find that inequity raises its ugly head equally, and as starkly, when you look at the numbers.
Kept in the dark
Here too, a small percentage have the lion's share of national income in their hands, while the rest of the population experience stagnant incomes, all within a democratic, rather than an authoritarian, political regime.
Yet the real difference here is that, away from the numbers, the wider population and the electorate were mostly kept in the dark about this.
In 2006, the top one per cent of American households' share of all disposable income amounted to almost a quarter of all households' disposable income, according to Robert Hunter Wade, professor of political economy at the London School of Economics.
In crude terms, one per cent of the population have a quarter of all the wealth.
Moreover, Wade found the average income of the bottom 90 per cent of the population remained almost stagnant after 1980, although consumption kept rising thanks to the build-up of private debt.
This means that 90 per cent of the American economy were financing their American dream on debt.
In the UK, Wade found the pay gap between the highest and average earners had widened alarmingly.
Back in 1989, chief executives pocketed 17 times more than average earners.
By 2007, those same "captains of industry" were earning 75 times more than the average worker.
That is one enormous leap and I wouldn't mind that happening to my salary!
What's good for Wall Street ...
Warning signs that the financial crisis would become the great recession were there for all to see for a long time.
But where were the alarms in the system itself to say that these countries and the individuals in them were pursuing an unsustainable way of life?
Where were the signs that things were going to end disastrously and, worse still, that the most vulnerable might end up paying the heftiest and most disproportionate price than anyone else?
I believe the status quo was allowed to go unquestioned because banks were benefiting obscenely from the interest on our debt, and governments were in cahoots with these banks.
Let's not forget that governments conveniently moved away from the provision of affordable healthcare, free university education and affordable housing while the banks entered our lives, aggressively, to fill that void.
In addition, I think that this warped and unjust way of operating was not questioned because the electorate was kept in the dark in the most subtle way possible.
The whole issue was made invisible. It was kept off the radar screens of electoral politics.
The American electorate were made accomplice to this because they were convinced that what was good for Wall Street, was good for America as a whole.
It was a political sleight of hand of the highest order. And this explains the bipartisan agreement to the ill-designed deregulation of the finance sector that we have seen over the years.
America has become a bank-owned state.
Ann Pettifor, a fellow development economist who works for the New Economics Foundation, says the US administration has been hijacked, and democracy has been pushed aside in favour of what is good for the bankers, by what Abraham Lincoln called "the money power".
And how right she is. The way the banks are being bailed out is a clear example of this political edifice.
Sucking the life out of tax-payers
The fact some of these failing banks have been thrown a lifeline is a testament to the hold they have over Barack Obama's administration.
Some of the banks should be allowed to die because they are so insolvent and holding so much in toxic assets that they will forever need to be on taxpayer-funded life support.
The problem is, this life support is sucking the life out of the taxpayer in the process, as it weighs them down with ever-increasing debt.
On top of that, the money could be used to restructure the economy in a way that is less reliant on the financial sector.
Underlying this refusal to kill those banks in poor health is a faulty and, dare I say, convenient assumption, that is not backed up by reality or fact, that the banks are facing a liquidity crisis as opposed to them facing a solvency crisis.
A liquidity crisis means the banks are facing a credit shortage, and once that is sorted, all will be well.
A solvency crisis means that the assets of many banks, firms and households are worth less than their debt.
And this means that these banks have to be completely nationalised.
Which leads us to Timothy Geithner, the US treasury secretary, and his "stress tests".
The tests were meant to give a clear and final assessment of these banks' balance sheets, telling us which were healthy and which would not be able to survive and would need more cash if the recession deepens.
As in any induced test, like the ones we undergo when we have our hearts tested, the "stress tests" were meant to simulate worse-case scenarios. Well, that was the promise at least.
The hope was that some would be declared so bad, they would have to go under once and for all.
Unfortunately, the tests turned out peculiarly lacking in stress.
Nouriel Roubini, professor at the Stern School of Business at New York University, says: "The government used assumptions for the macro variables in 2009 and 2010 that are so optimistic that the actual data for 2009 are already worse than the adverse scenario.
"As for some crucial variables, such as the unemployment rate – key to proper estimates of default and recovery rates for residential mortages ... and other bank loans – the current trend shows that by the end of 2009 the unemployment rate will be higher than the average unemployment rate assumed in the more adverse scenario for 2010, not for 2009."
The unemployment rate used in the worse-case scenario was assumed to average 8.9 per cent in 2009 and 10.3 per cent in 2010. But unemployment has already reached 9.4 per cent this year, and looks likely to overtake 10.3 per cent by next year.
So, there is nothing really challenging about these worse case scenarios at all.
Next week, I'll write about Timothy Geithner's plan to wipe toxic assets off the banks' balance sheets without getting rid of one single bank ... and how long before we say ENOUGH and really do something about it.
Aljazeera.net/english 2003 - 2009 ©
Devolution: 20 Predictions | Charles Hugh Smith/OfTwoMinds.com
While some see a collapse of society in our future, right now I see devolution, not revolution. Devolution is both the process of degeneration and the surrender of governmental powers from central authorities to local authorities.Devolution will take many forms. The key driver behind devolution is simple: there's not enough money to fund the status quo, so something has to be cut, axed, trimmed or devolved. Examples already abound: the number of school days in the year are reduced to shave expenses, two-times-a-week trash pickup is cut to once a week, etc.
The key constraint on devolution is also simple: the status quo power structure must be left intact. Nobody will willingly surrender their power, so devolution means services and front-end expenses will be cut in order to protect back-end administrative powers.
Thus public union bosses won't be suffering any big cuts in pay or benefits, and neither will their municipal and state administration counterparts. (Of course there will be symbolic cuts for PR purposes, but nothing deep.) What will be cut is part-time librarians, custodians, county park staff, etc.--the powerless people who actually serve the public.
As the states run out of money, they will surrender some limited powers to local authorities as a mechanism for ridding their budgets of certain costs. As cities and counties go broke, then they will devolve some modest authority to non-profit groups or volunteers.
As laid off workers' unemployment insurance runs out (yes, even the extensions run out as the states' UI funds drain to zero) then their lifestyles devolve/degrade: first, eating out and vacations go, then new clothing, then the second car, then college, then the house, and so on.
Devolution is a painful process, but the State (all government at all levels) and the Plutocracy (owners of capital and productive assets) vastly prefer devolution to revolution because devolution doesn't threaten the current status quo/Powers That Be at all.
Devolution depends on humanity's innate ability to habituate to nearly anything. Thus humans somehow adapt to concentration camps, bitter cold, intolerable heat, mind-numbing work, etc., especially if the new environment is introduced over time in stages.
Thus the middle class household might actually respond with an anger deep and hot enough to become political if their middle-class lifestyle was taken away in one swoop. But devolution insures that the process is akin to the famous analogy of the boiled frog: if the temperature of the water is increased slowly enough, the frog never notices (or so the story goes) that he is being boiled alive.
The middle class household forced to sell everything and move (surreptitiously) into a storage locker or into an RV will feel a shock of recognition that all has been lost, and that perhaps forces beyond their own personal decisions might be at work: forces which benefitted from Federal bailouts, for instance, in a way they can never hope to. (That $150 billion transferred through AIG to Goldman Sachs would have funded a very large national unemployment insurance pool.)
But if their middle class life is taken away from them over time, in pieces, they will habituate to each loss without any political enlightenment; they have fully internalized the MSM propaganda (and recall the mass media is owned by less than 10 global corporations) that the "problem" is their own, not "the system's."
A revolution occurs when great numbers of people realize that the system benefits the Powers That Be, not the citizenry, despite the PTB's constant assurances that this is the very best system on Earth.
So the surest way to secure one's lofty privileges and powers is to convince the people who have lost everything that it's all their own fault; if they were just smarter, possessed more degrees, had better judgment, weren't hooked on anti-depressants, etc., then they would be jolly, wealthy, etc.
In a similar fashion, local government will attempt to manage the degeneration of their services in such a way that the public does not realize it's being boiled. If the trains and buses all stopped running, people might be angry enough to turn off their TVs and demand some actual, real political change. But if services are slowly degraded over time, the public will sigh and habituate to it.
Meanwhile, the police chief, mayor, union bigwigs, et al. will be driving by in their chauffeured vehicles, making sure "the little people" are swallowing the devolution whole. The politicos' Masters, the Plutocracy who fund their campaigns, will fill their coffers at election time as long as nothing rocks the boat. If the citizenry gets restive, then the politicos will find their funding drying up (Heaven forbid!).
Here are some random devolution predictions for the coming year or three. Many are already visible, so the "prediction" is simply a recognition of a rising trend.
1. Listings on craigslist announcing the selling/giving away of the entire contents of storage lockers will rise.2. The number of people living in storage lockers "illegally" will rise.
3. Citizens with numerous outstanding traffic tickets will abandon their vehicles when "booted" (locked) by cities as the cars are worth less that the fines due. Cities will start auctioning/scrapping hundreds of abandoned vehicles.
3. The dumping of abandoned clothing, furniture, old computer equipment, etc. on sidewalks and public parks/byways will increase dramatically.
4. Homeless camps will appear in parks and locales which were previously considered off-limits to such public poverty.
5. The number of citizens cited/arrested for unpaid moving and parking violations will rise; judges will begin dismissing the amounts due as the citizens before them have no means of paying the huge fines.
6. Government at all levels will devote increasing resources to revenue collection; new laws giving the State (all levels of government) new powers to stripmine private assets will be passed with strong support from government-dependent special-interests.
7. Government at all levels will assign domestic intelligence assets to the search for additional tax revenues; these actions will be strictly secret.
8. A major sports franchise or two will declare bankruptcy.
9. Spontaneous protests (over evictions, reductions in service, etc.) will increase both in frequency and in the number of participants.
10. Tourism will devolve to visiting relatives and/or car camping; hotels and restaurants in tourist-dependent locales will start closing in ever increasing numbers. Only the top 10% "high-caste" professional and government-technocrat class will be able to travel overseas.
11. Cities and corporations which were previously considered immune to the "recession" will declare losses and huge layoffs.
12. Houses which were snapped up in 2009 for $350,000 on the basis that they once sold for $550,00 will be auctioned for less than $200,000 in late 2010.
13. Local governments outside of the Rust Belt will start aggressively taking over abandoned houses as banks fail and ownership of the properties becomes ambiguous.
14. Local government fines, fees, permits and other business-related licensing will plummet, decimating what was once considered a "safe" revenue stream.
15. State and local government services will rapidly devolve: twice-a-week trash pickup will devolve to once a week; fire stations, libraries and schools will be consolidated; other services will become sporadic.
16. State and local government hikes in fees to use parks, park downtown, drop junk at the dump, get a building permit, etc. will backfire: people will stop going to parks, stop shopping downtown, start dumping junk at night on quiet streets now that the dump is too expensive and start remodeling without permits. Contrary to government expectations, revenues will actually drop faster after all these fees are raised.
17. Church/temple/mosque attendance will rise, as will participation in church/temple/mosque events.
18. Major rock/pop concert tours will be cancelled due to low ticket sales; acts which were "guaranteed to mint millions" wll be forced to cancel their tours.
19. Veterinarians will demand cash to examine pets; people will increasingly be unable to pay for costly procedures for their pets (teeth cleaning, hip replacements, chemotherapy, etc.). Vets will consolidate/close their doors.
20. State/county attempts to openly raise taxes will increasingly trigger tax rebellions and demonstrations; the trickle of residents leaving high-tax states and counties will grow to a flood.
Bonus prediction: California's current deficit of $24 billion will widen by another $10 billion in 2010. What was once considered "impossible"--state default on bonds, pensions and much else--will come to be viewed as inevitable.
The political propaganda which infuses every moment of our lives tries to maintain an artificial distinction between our Tweedledum and Tweedledee political parties: The Dees are all for using the power of the State (all government) to "help the little people" while the Dums are all for unleashing the power of free enterprise, a.k.a. the 1% who control the capital and 2/3 of all productive assets in the nation (the Plutocracy).
The truth is that the State and the Plutocracy are two sides of one coin; each rules with the support and complicity of the other. The distinction drawn between them is a useful distraction, somewhat like drawing a distinction between professional sports teams who swap players in the off-season. "My team" is an abstraction which serves the goal of enriching its owners; "fan" loyalty draws smirks from everyone in the know even as they proclaim "fan day" and "fan appreciation day." (The crosstown rival team is of course "the hated enemy.")
As we watch devolution in action over the next few years, observe how it is managed so the hapless frog won't jump from the pot. That is what they're counting on, of course; a devolution passively accepted by a media-duped, gadget-addicted, self-blaming, depressed, drugged-out populace.
Put another way: devolution is what happens while the Delusionol (tm) wears off.
Copyright © 2009 Charles Hugh Smith
Tuesday, June 23, 2009
Economic Barometer Falling
Earthside Comments: The headline in our local newspaper this morning shouted: "Colorado Budget Year to Start in $384 Million Hole" ... this after last year's dramatic shortfall.
Colorado is not alone as the New York Times report linked to below shows. Indeed, most states are experiencing revenue deficits that are causing severe disruption to government budgets. It is our contention that what this demonstrates is that the economic downturn spreads -- the "green shoots" are actually invasive weeds of destruction creeping over the landscape. ''Shortfalls in revenue for any government result from a shortfall in incomes for individuals and businesses, in no sales taxes from sales, decreasing permits and licenses and fees from lack of economic activity, and declining property values from the real estate bust.
Put the state of the states on top of the unemployment scene and the economic barometer in the real world tells us that even if the rate of decline seems to have slowed, the fall continues.
The scary thing that is looming, of course, is that the primary reason the rate if decline may have slowed is simply because of the bail-out bubble -- and we include the massive borrowing for the Obama's stimulus package in this rubric. We are now trillions and trillions of dollars in debt to future generations, in our opinion, a most immoral and unethical policy. Truly, no generation should ever borrow more than they themselves will be capable of paying back in their own lifetimes -- but since the Reagan presidency, adding to the national debt has become the way politicians bribe voters to reelect them -- and most of us have gladly gone along with this scheme.
So, the big picture Earthside draws remains the same, we are now inside a debt bubble that has been leaking but has not yet full deflated ... but it will.
States Turning to Last Resorts in Budget Crisis | New York Times
In Hawaii, state employees are bracing for furloughs of three days a month over the next two years, the equivalent of a 14 percent pay cut. In Idaho, lawmakers reduced aid to public schools for the first time in recent memory, forcing pay cuts for teachers. And in California, where a $24 billion deficit for the coming fiscal year is the nation’s worst, Gov. Arnold Schwarzenegger has proposed releasing thousands of prisoners early and closing more than 200 state parks.Meanwhile, Maine is adding a tax on candy, Wisconsin on oil companies, and Kentucky on alcohol and cellphone ring tones.
With state revenues in a free fall and the economy choked by the worst recession in 60 years, governors and legislatures are approving program cuts, layoffs and, to a smaller degree, tax increases that were previously unthinkable.
All but four states must have new budgets in place less than two weeks from now — by July 1, the start of their fiscal year. But most are already predicting shortfalls as tax collections shrink, unemployment rises and the stock market remains in turmoil.
“These are some of the worst numbers we have ever seen,” said Scott D. Pattison, executive director of the National Association of State Budget Officers, adding that the federal stimulus money that began flowing this spring was the only thing preventing widespread paralysis, particularly in the areas of education and health care. “If we didn’t have those funds, I think we’d have an incredible number of states just really unsure of how they were going to get a new budget out.”
The states where the fiscal year does not end June 30 are Alabama, Michigan, New York and Texas.
Even with the stimulus funds, political leaders in at least 19 states are still struggling to negotiate budgets, which has incited more than the usual drama and spite. Governors and legislators of the same party are finding themselves at bitter odds: in Arizona, Gov. Jan Brewer, a Republican, sued the Republican-controlled Legislature earlier this month after it refused to send her its budget plan in hopes that she would run out of time to veto it.
In Illinois, the Democratic-led legislature is fighting a plan by Gov. Patrick J. Quinn, also a Democrat, to balance the new budget by raising income taxes. And in Massachusetts, Gov. Deval Patrick, a Democrat, has threatened to veto a 25 percent increase in the state sales tax that Democratic legislative leaders say is crucial to help close a $1.5 billion deficit in the new fiscal year.
“Legislators have never dealt with a recession as precipitous and rapid as this one,” said Susan K. Urahn, managing director of the Pew Center on the States. “They’re faced with some of the toughest decisions legislators ever have to make, for both political and economic reasons, so it’s not surprising that the environment has become very tense.”
In all, states will face a $121 billion budget gap in the coming fiscal year, according to a recent report by the National Conference of State Legislatures, compared with $102.4 billion for this fiscal year. ...
... As a result, governors have recommended increasing taxes and fees by some $24 billion for the coming fiscal year, the survey found. This is on top of more than $726 million they sought in new revenues this year.
The proposals include increases in personal income tax rates — Gov. Edward G. Rendell of Pennsylvania has proposed raising the state’s income tax by more than 16 percent, to 3.57 percent from 3.07 percent, for three years — and tax increases on myriad consumer goods.
“They have done a fair amount of cutting and will probably do some more,” said Ray Scheppach, executive director of the governors association. “But as they look out over the next two or three years, they are also aware that when this federal money stops coming, there is going to be a cliff out there.” ...
... In one preview, Gov. Tim Pawlenty of Minnesota, a Republican, said last week that he would unilaterally cut a total of $2.7 billion from nearly all government agencies and programs that get money from the state, after he and Democratic legislative leaders failed to agree on how to balance the budget.
In an example of the countless small but painful cuts taking place, Illinois announced last week that it would temporarily stop paying about $15 million a year for about 10,000 funerals for the poor. Oklahoma is cutting back hours at museums and historical sites, Washington is laying off thousands of teachers, and New Hampshire wants to sell 27 state parks.
A Snake Eating Its Own Tail | James Howard Kunstler
I'd like to know what Barack Obama thinks he's doing with the fiasco we call the US economy. He can't pump it back into the credit-fueled freak show it used to be, of course, but he could steer it in a practical new direction. Even people who have lost a lot, and stand to lose more, can be motivated to behave more self-beneficially. The president doesn't have very long before his economic problems become really awful political problems.The current mass delusion that will go down in history as the "green shoots fugue" can't possibly bring the credit freak show back because the credit -- i.e. money borrowed from the American future -- was swindled away. Something like $14 trillion worth of nominal dollars is being sucked into a cosmic vortex never to be seen again. It was last seen in the spectral forms of so many collateralized debt obligations, credit default swaps, so-called structured investment vehicles and other now-obvious frauds. That giant sucking sound we hear means the process is still underway, and the "money" disappearing into yawning oblivion will out-pace any effort orchestrated by the Federal Reserve and the US Treasury to replace it with new "money" (or credit). Therefore there is no chance between heaven and hell that the pre-2008 suburban homesteading and shopping fiesta can ever come back. The American polity is tapped out in all sectors, personal, corporate, and public.
Notice the two words largely absent from whatever public discussion exists around these matters -- "swindle" and "fraud." The reason they're missing is because if they happened to enter the conversation, something would have to be done about them, namely investigations and prosecutions. The president is the person in the best position to set the terms of this public discussion, and by avoiding these two words he's blowing the chance to begin the process of correcting the tragic course we're on.
These swindles and frauds range from malfeasance at the highest levels to indecency in the lowliest cubicles -- i.e. the collusion of a revolving cast of cabinet-level officials with Wall Street executives to loot the US Treasury, the probable criminal dereliction at the mid-level of agencies like the Federal Reserve's oversight office and the SEC, to certain and outright street grifting in the traffic of securities known to be worthless at their creation. The current fiction that the public seems to be swallowing (for the moment) is along the lines of the old "mistakes were made" locution, which is an easy way to avoid holding individuals responsible for misdeeds.
The competence and hence the legitimacy of the US government is on the line here. The US economic situation is going to get a lot worse. Many more people are going to lose incomes and chattels and will suffer, and the moment will arrive when they will direct their anger outward. They need to be told two things: that the borrowed-against future is now here, requiring very different behavior; and that those who received lavish payment for looting the American future unlawfully will be subject to due process of law. So far, nobody has even been fired, let alone officially investigated.
Meanwhile, the nation is lumbering toward an epochal moment of truth when the non-viability of how we get by day-to-day is exposed for all to see, including those other nations who have been lending us colossal sums of their hard-earned money to keep our operations afloat. This will be the moment when the US renounces its debt -- or just proves unable to continue pretending to service it. This moment is liable to come sometime after the middle of this summer. It will be the moment when all the green shoots babytalk stops and the scope of onrushing hardship becomes self-evident. It will be the moment when all of America finds itself in something like the aftermath of Hurricane Katrina, when the federal government proves comically impotent and the cold reality hits that we're now all on our own.
If it comes to that, I will be sorry to see Barack Obama in the goat-leader role formally occupied by George W. Bush. I voted for Mr. Obama mainly because I thought he had the capacity to tell the public the truth and inspire them to move forward out of childish indulgence into a more rigorous and challenging way of life consistent with the mandates of reality. I'm still not convinced that he'll fail at this, but time is growing awfully short.
The dreadful moment may arrive with the functional bankruptcy of California, which is on-schedule, as it happens, for July. Governor Schwarzenegger, who really seems to have tried introducing fiscal reality out there, and just plain failed, will surely come to the White House begging for a bail-out. It would be hard for President Obama to turn him down, but then forty-nine other governors will line up behind Arnold and everybody in the world will see what a farce our governance has turned into: a snake eating its own tail.
Monday, June 22, 2009
Waterloo or Leadership?
Here is our message to Barack Obama, David Axelrod, and the rest of the tacticians and strategists scheming for the Dimocrat Party on health care reform: recalibrate and reset, NOW!
A nation longing for genuine, real change after eight disastrous Bush years will become cynical and dismissive of Obama and his gang if they continue on their timid and compromised path for health care reform. Indeed, considering the emphasis Obama and the Dimocrats placed on the health care reform in order to prevail in the 2008 elections, their clumsiness and tone-deafness on this issue now is astounding ... or very revealing of the level of corruption that permeates Washington.
The two reports and the analysis below tell the tale. We want "major" reform and we want 'single-payer' or a significant 'public option'. We also know all about who is pulling the strings in Congress with millions and millions of dollars in campaign contributions.
So, is it us, the people, or the big campaign bucks?
So, Dimocrats, is it going to be Waterloo for you ... or are you going to find the courage to lead?
Wide Support for Government Health Plan | Reuters
Americans strongly support fundamental changes to the healthcare system and a move to create a government-run insurance plan to compete with private insurers, according to a New York Times/CBS News poll published on Saturday.The poll came amid mounting opposition to plans by the Obama administration and its allies in the Democratic-controlled Congress to push through the most sweeping restructuring of the U.S. healthcare system since the end of World War Two.
Republicans and some centrist Democrats oppose increasing the government's role in healthcare -- it already runs the Medicare and Medicaid systems for the elderly and indigent -- fearing it would require vast public funds and reduce the quality of care.
But the Times/CBS poll found 85 percent of respondents wanted major healthcare reforms and most would be willing to pay higher taxes to ensure everyone had health insurance. An estimated 46 million Americans currently have no coverage.
Seventy-two percent of those questioned said they backed a government-administered insurance plan similar to Medicare for those under 65 that would compete for customers with the private sector. Twenty percent said they were opposed. ...
Health Sector Has Donated Millions to Lawmakers | Washington Post - March 8, 2009
Health insurers and drug makers have showered members of the 111th Congress with millions in campaign contributions over the last four years, with a special focus on leaders who will play major roles in shaping health-care legislation, according to a study to be released tomorrow.Health insurers and their employees contributed $2.2 million to the top 10 recipients in the House and Senate since 2005, while drug makers and their employees gave more than $3.3 million to top lawmakers during that period, according to an analysis of federal elections data by Consumer Watchdog, a California-based advocacy group.
The biggest beneficiaries in the Senate included John McCain (R-Ariz.), with $546,000; Minority Leader Mitch McConnell (R-Ky.), with $425,000; and Max Baucus (D-Mont.), with $413,000, who as head of the Finance Committee will play a leading role in the debate over health-care reform.
In the House, the two groups gave $257,000 to Minority Leader John A. Boehner (R-Ohio) and $249,000 to Minority Whip Eric Cantor (R-Va.). On the Democratic side, Rep. Earl Pomeroy (N.D.) received contributions from the insurance sector ($104,000), while Rep. John D. Dingell (Mich.) took in $180,000 from drug companies. ...
... Consumer Watchdog, formerly known as the Foundation for Taxpayer and Consumer Rights, says the amount of money pouring into Congress from the health-care sector raises questions about the independence of lawmakers as they consider dramatic changes to the health-care system. The group conducted the study using Federal Election Commission data compiled by the Center for Responsive Politics, isolating the insurance and pharmaceutical categories from the broader health-care sector.
Obama's Health Reform Waterloo | Dave Lindorff/CommonDreams.org
The Obama administration and the Congressional Democrats are finally hitting the inevitable wall that was bound to confront them because of the president's congenital inability to be a bold leader, and because of the party's toxic decades-old decision to betray its working class New Deal base in favor of wholesale corporate whoredom.The wall is health care reform, which both Barack Obama and the Democratic Party had hoped would be the ticket for them to ride to victory in the 2010 Congressional elections and the 2012 presidential election.
But you cannot achieve the twin goals of reducing health care costs and providing access to health care to 50 million uninsured people, while leaving the profit centers of the current system--doctors, hospitals and the health insurance industry--in charge and in a position to continue to reap profits.
Watching President Obama address the American Medical Association was a cringe-inducing experience as he assured the assembled doctors he was not going to expand Medicare payments "broadly" to cover all patients, or end the current "piece-work reimbursement" system that has so enriched physicians, or as he told them that savings would "not come off your backs." It was particularly cringe-inducing when he told the AMA that he knew that making money was not why its members were in the profession, saying, "That is not why you became doctors. That is not why you put in all those hours in the Anatomy Suite or the O.R. That is not what brings you back to a patient's bedside to check in or makes you call a loved one to say it'll be fine. You did not enter this profession to be bean-counters and paper-pushers. You entered this profession to be healers--and that's what our health care system should let you be."
Oh please. I know there are plenty of wonderful doctors who are dedicated to their patients and to patient care. But I also know plenty of doctors who have told me how half their classmates in medical school were mainly in it for the money, and that study halls and cafeterias of American med schools echo with the conversations about what can be made working in particular specialties. Not to mention the corrupt and insidious profit-sharing arrangements doctors enter into with labs, CAT-Scan and MRI test centers, pharmaceutical companies and other businesses, to earn profits by sending patients for unnecessary tests and treatments.
One can only imagine what he would be saying to insurance industry executives about his "reform" plans.
Because Obama and Congressional Democrats are unwilling to cut themselves off from the lucrative campaign-funding bonanza that is the health care industry, they cannot address seriously either the cost or the access crisis that plagues health care in the US, and that makes health care in this country cost 20 percent of GDP--twice what it costs in any other modern nation on a per capita or GDP basis, and that still leaves one in six Americans without ready access to even routine health care.
The answer to this crisis is obvious: a single-payer "socialized" system, in which you still have private doctors, and private or publicly run hospitals, but where the government sets the payment rates for treatment, and provides all compensation to health care providers.
If Democrats in Congress were serious about health care reform, they would immediately order the Congressional Budget Office to conduct a cost study of instituting such a program--a study that would include an estimate of the savings to individuals and employers if health care costs were lifted entirely off their backs (because obviously it would require considerable new government revenue to fund a single-payer program, but that's only half the equation--the other half, the savings, is simply ignored by critics and doomsayers on the right and in the health care industry). Instead, Obama and the Democratic Congress are studiously avoiding even allowing any mention of the single-payer option. (A New York Times report today on the various health care plans working their way through Congress, and coming out of the White House, completely blacked out any mention of a single-payer bill in the House authored by Rep. John Conyers (D-MI), chairman of the House Judiciary Committee, which the House leadership has prevented from even getting a token hearing.)
Obama's unwillingness to lead on this issue will doom his health care plan. There is obviously no way Congress is going to shake off its corrupt leech-like attachment to corporate sponsors and their cash-spreading lobbyists, but had the new president wanted to make a historic mark and cruise to victory in 2012, he could have, like President Lyndon Johnson before him in his campaign for Medicare in 1965, put himself solidly behind a single-payer plan and made the case that it could cut America's collective health bill in half while opening the door to every American.
Instead, he's likely to end up with worse than nothing--that is with even more uninsured Americans come 2012, and with health care costs moving up as a share of GDP--and could well find himself out of a job. The policy that his handlers, like White House Chief-of-Staff Rahm Emanuel, had conceived of as Obama's ticket to re-election, health care reform, could well prove instead to be his Waterloo.
That is if his adoption of a policy of expanded war in Afghanistan--another example of a failure to lead--doesn't prove to be this president's bigger policy disaster.
Friday, June 19, 2009
Summertime
Earthside is going to taken a short break to enjoy the Summer Solstice: Sunday, June 21, 2009.
We'll be back later on Monday.
Fizzling Health Care Reform
President Obama is letting genuine health care reform for the people of the United States fizzle away.
First, instead of enlisting the support of the single-payer advocates, he took that option off the table, in other words, the most fervent supporters for change have been disenfranchised by the White House -- not a smart political move.
Second, by not starting this process with single-payer, he has put himself in the position of giving up on what little reform he was actually asking for in the first place. He could have negotiated from single-payer to reform with a public option, but by having the public option proposal as his starting point, he is left with little but that to trade away any meaningful change.
What is happening is that Obama and the Dimocrats are failing on the health care issue ... as usual it is their timidity and their lust for campaign dollars that is leading to this failure. Indeed, the Republicans have been largely irrelevant in the debate up to this point. The damage to Obama's signature first year domestic issue is self-inflicted.
The best idea is to try the single-payer concept -- there is plenty of money to pay for health care for all Americans if the greedy insurance industry middlemen are taken out of the equation.
It really is that simple, but that kind of change would require real political courage and bravery ... and that apparently just does not exist within the Dimocrat Party Congressional establishment.
House Eyes New taxes as Senators Pare Health Bill | Associated Press/Yahoo News
Will Health Care Reform Fall Short? | James Ridgeway/Mother Jones
Wednesday, June 17, 2009
U.S. Military Sinking Us
Earthside Comments: Chris Hedges is a dramatic writer, and we will see what happens to the value of the dollar in the short term ... but an critical key in the article below is true: the military of the United States is bankrupting us.
We have pointed out before on this web site that if all military spending is added up, that is the Pentagon budget, the Energy Department's military spending, the CIA, veterans benefits, etc. -- the total is at least a trillion dollars a year.
While there are many sacred cows in Washington, the most sacred of sacred cows is "defense spending." Neither Dimocrat or Republican dare even make proposals to cut waste and corruption from the military budgets, to do so means getting pounded politically as being "weak on defense."
What this means is that we are headed the way of the old Soviet Union that let its commitments to finance the military finally overwhelm the rest if its economy.
The obvious truth is that we cannot afford to be an empire any longer. A real leader and a responsible Congress would be working to closing at least half of the military bases and outposts that we operate around the globe. (On the civilian side, we maintain that a lot of corporate welfare ought to be cut out of the federal budget, too.) But we also all know that this is not going to happen.
Which is why Chris Hedges is correct to be dramatic ... because sooner or later, the recognition of the bankruptcy of the United States is going to have consequences.
"Sooner or later everyone sits down to a banquet of consequences."
Robert Louis Stevenson
The American Empire Is Bankrupt | Chris Hedges/Truthdig.com
This week marks the end of the dollar’s reign as the world’s reserve currency. It marks the start of a terrible period of economic and political decline in the United States. And it signals the last gasp of the American imperium. That’s over. It is not coming back. And what is to come will be very, very painful.Barack Obama, and the criminal class on Wall Street, aided by a corporate media that continues to peddle fatuous gossip and trash talk as news while we endure the greatest economic crisis in our history, may have fooled us, but the rest of the world knows we are bankrupt. And these nations are damned if they are going to continue to prop up an inflated dollar and sustain the massive federal budget deficits, swollen to over $2 trillion, which fund America’s imperial expansion in Eurasia and our system of casino capitalism. They have us by the throat. They are about to squeeze.
There are meetings being held Monday and Tuesday in Yekaterinburg, Russia, (formerly Sverdlovsk) among Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation Shanghai Cooperation Organization. The United States, which asked to attend, was denied admittance. Watch what happens there carefully. The gathering is, in the words of economist Michael Hudson, “the most important meeting of the 21st century so far.”
It is the first formal step by our major trading partners to replace the dollar as the world’s reserve currency. If they succeed, the dollar will dramatically plummet in value, the cost of imports, including oil, will skyrocket, interest rates will climb and jobs will hemorrhage at a rate that will make the last few months look like boom times. State and federal services will be reduced or shut down for lack of funds. The United States will begin to resemble the Weimar Republic or Zimbabwe. Obama, endowed by many with the qualities of a savior, will suddenly look pitiful, inept and weak. And the rage that has kindled a handful of shootings and hate crimes in the past few weeks will engulf vast segments of a disenfranchised and bewildered working and middle class. The people of this class will demand vengeance, radical change, order and moral renewal, which an array of proto-fascists, from the Christian right to the goons who disseminate hate talk on Fox News, will assure the country they will impose.
I called Hudson, who has an article in Monday’s Financial Times called “The Yekaterinburg Turning Point: De-Dollarization and the Ending of America’s Financial-Military Hegemony.” “Yekaterinburg,” Hudson writes, “may become known not only as the death place of the czars but of the American empire as well.” His article is worth reading, along with John Lanchester’s disturbing exposé of the world’s banking system, titled “It’s Finished,” which appeared in the May 28 issue of the London Review of Books.
“This means the end of the dollar,” Hudson told me. “It means China, Russia, India, Pakistan, Iran are forming an official financial and military area to get America out of Eurasia. The balance-of-payments deficit is mainly military in nature. Half of America’s discretionary spending is military. The deficit ends up in the hands of foreign banks, central banks. They don’t have any choice but to recycle the money to buy U.S. government debt. The Asian countries have been financing their own military encirclement. They have been forced to accept dollars that have no chance of being repaid. They are paying for America’s military aggression against them. They want to get rid of this.”
China, as Hudson points out, has already struck bilateral trade deals with Brazil and Malaysia to denominate their trade in China’s yuan rather than the dollar, pound or euro. Russia promises to begin trading in the ruble and local currencies. The governor of China’s central bank has openly called for the abandonment of the dollar as reserve currency, suggesting in its place the use of the International Monetary Fund’s Special Drawing Rights. What the new system will be remains unclear, but the flight from the dollar has clearly begun. The goal, in the words of the Russian president, is to build a “multipolar world order” which will break the economic and, by extension, military domination by the United States. China is frantically spending its dollar reserves to buy factories and property around the globe so it can unload its U.S. currency. This is why Aluminum Corp. of China made so many major concessions in the failed attempt to salvage its $19.5 billion alliance with the Rio Tinto mining concern in Australia. It desperately needs to shed its dollars.
“China is trying to get rid of all the dollars they can in a trash-for-resource deal,” Hudson said. “They will give the dollars to countries willing to sell off their resources since America refuses to sell any of its high-tech industries, even Unocal, to the yellow peril. It realizes these dollars are going to be worthless pretty quickly.”The architects of this new global exchange realize that if they break the dollar they also break America’s military domination. Our military spending cannot be sustained without this cycle of heavy borrowing. The official U.S. defense budget for fiscal year 2008 is $623 billion, before we add on things like nuclear research. The next closest national military budget is China’s, at $65 billion, according to the Central Intelligence Agency.
There are three categories of the balance-of-payment deficits. America imports more than it exports. This is trade. Wall Street and American corporations buy up foreign companies. This is capital movement. The third and most important balance-of-payment deficit for the past 50 years has been Pentagon spending abroad. It is primarily military spending that has been responsible for the balance-of-payments deficit for the last five decades. Look at table five in the Balance of Payments Report, published in the Survey of Current Business quarterly, and check under military spending. There you can see the deficit.
To fund our permanent war economy, we have been flooding the world with dollars. The foreign recipients turn the dollars over to their central banks for local currency. The central banks then have a problem. If a central bank does not spend the money in the United States then the exchange rate against the dollar will go up. This will penalize exporters. This has allowed America to print money without restraint to buy imports and foreign companies, fund our military expansion and ensure that foreign nations like China continue to buy our treasury bonds. This cycle appears now to be over. Once the dollar cannot flood central banks and no one buys our treasury bonds, our empire collapses. The profligate spending on the military, some $1 trillion when everything is counted, will be unsustainable.
“We will have to finance our own military spending,” Hudson warned, “and the only way to do this will be to sharply cut back wage rates. The class war is back in business. Wall Street understands that. This is why it had Bush and Obama give it $10 trillion in a huge rip-off so it can have enough money to survive.”
The desperate effort to borrow our way out of financial collapse has promoted a level of state intervention unseen since World War II. It has also led us into uncharted territory.
“We have in effect had to declare war to get us out of the hole created by our economic system,” Lanchester wrote in the London Review of Books. “There is no model or precedent for this, and no way to argue that it’s all right really, because under such-and-such a model of capitalism ... there is no such model. It isn’t supposed to work like this, and there is no road-map for what’s happened.”
The cost of daily living, from buying food to getting medical care, will become difficult for all but a few as the dollar plunges. States and cities will see their pension funds drained and finally shut down. The government will be forced to sell off infrastructure, including roads and transport, to private corporations. We will be increasingly charged by privatized utilities—think Enron—for what was once regulated and subsidized. Commercial and private real estate will be worth less than half its current value. The negative equity that already plagues 25 percent of American homes will expand to include nearly all property owners. It will be difficult to borrow and impossible to sell real estate unless we accept massive losses. There will be block after block of empty stores and boarded-up houses. Foreclosures will be epidemic. There will be long lines at soup kitchens and many, many homeless. Our corporate-controlled media, already banal and trivial, will work overtime to anesthetize us with useless gossip, spectacles, sex, gratuitous violence, fear and tawdry junk politics. America will be composed of a large dispossessed underclass and a tiny empowered oligarchy that will run a ruthless and brutal system of neo-feudalism from secure compounds. Those who resist will be silenced, many by force. We will pay a terrible price, and we will pay this price soon, for the gross malfeasance of our power elite.
Copyright © 2009 Truthdig, L.L.C./blockquote>
Tuesday, June 16, 2009
Secretary Duncan Dunce
We concur with Mr. Bracey's assessment.
Robots in Education | Gerald Bracey/HuffingtonPost.com
Engineers have made great advances in robotics in recent years. Everyday-robots can vacuum rugs and mop floors. More advanced models can act as secretary of education. Call it the Arne model. Boot it up and it talks and talks and talks. But it appears to lack two functions, the ability to say anything concrete and the ability to link its various sayings with the old human function known as logic.For instance, in his June 14 speech to a National Governors Association meeting, Robot Arne said, "The genius of our system is that much of the power to shape our future has wisely been distributed to the states instead of being confined to Washington." Yet in an interview after that talk he said, "What you've seen over the past couple year is a growing recognition from political leaders, educators, unions, nonprofits--literally every sector--coming to realize that 50 state doing their own thing doesn't make sense." A concept goes from wisdom to nonsense in a single speech!
In none of the speeches I've heard or read--and I've been tracking them pretty closely, has the robot Arne used the word "constitution," a document which, in the field of education is supposed to ensure that each state does its own thing.
What he does often mention, as in his speech to the National Press Club in late May, is, "What we have had as a country, I'm convinced, is what we call a race to the bottom." That the two "we's" obviously have different referents is of little import. What is, is that in that downward race, some 35,000 schools have been identified as "failing" under that Katrina of public education, No Child Left Behind. "Last year," Duncan told the governors," "there were about 5,000 schools in 'restructuring' under NCLB. These schools have failed to make adequate yearly progress for at least five years in a row."
These are presumably the 5,000 chronically under-performing schools that robot Arne wants to close and "turn around." Such an action raises several questions. First, just where are 5,000 excellent principals to run these schools? Have our star leaders just been waiting in the wings all this time? And what about the needed tens of thousands of ace teachers? Where are they? Are they lurking out there somewhere in the bayous of Louisiana or the sands of Nevada?
Second, Duncan told an audience at a breakfast sponsored by the Christian Science Monitor he wants "college-ready, career-ready international standards, very high bar." (Often when he speaks extemporaneously I hear the sound of grammarian teeth-gnashing). Well, if our race to the bottom has generated 35,000 failing schools, 5,000 of which are hopeless in robot Arne's eyes, what will a much higher bar produce?
Finally, supposing for a moment we could find all those teachers and principals, would that be enough? Even an outlet not known for its searching questions to people in positions of authority, U. S. News & World Report, caught the lack of logic here. "Would simply replacing teachers and principals work? If all the other factors in a low-achieving student's life--family, neighborhood, social life--were to remain constant, would substituting an outstanding teacher for an ineffective teacher reverse the achievement levels? Are good teachers and principals all that is needed to turn around struggling schools, the majority of which are in impoverished communities where the parents might not have the time to help their children succeed in school?"
The magazine stops short of describing the full range of the problems kids in impoverished neighborhoods face: lack of adequate prenatal care, ingestion of alcohol and drugs, having only one parent, food insecurity, toxins such as mercury and lead, and inadequate or missing health care (that kid who's having trouble learning to read might need an eye doctor; the kid who's inattentive might not be able to hear what the teacher is saying; the kid who can't concentrate might have a head full of tooth cavities).
Finally, robot Arne told the governors he was throwing $350 million into test development to back up the new high standards because, "I think in this country we have too many bad tests." I'm sure ETS, CTB-McGraw Hill, Pearson, etc., loved that one since they make most of them, but if that's true, then logic might make one wonder if those "bad tests" were the right ones to identify the bad schools. But as I said at the start, Robot Arne doesn't do logic.
And it's too bad the reporter covering the talk didn't ask Arne what a "good" test would look like. That question would have produced a deluge of clichés ("tests that measure whether students are mastering complex materials and can apply their knowledge," etc.), but nothing specific because, as I said at the start, Robot Arne doesn't do concrete.
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