Rand Paul, Ron Johnson And Sharron Angle Are Clowns But Toomey Is Just Plain Dangerous

If you had to point to one event that led most disastrously to the financial collapse the economy is still suffering from, it would have to be the repeal in 1999 of the Banking Act of 1933 (Glass Steagall), passed at the height of the Great Depression to rein in the kinds of speculation which caused said Depression. Notorious Wall Street corporate whore-- and soon after a major banking executive who made millions-- Phil Gramm (R-TX), introduced the toxic legislation and shepherded it through the Senate, where it passed 54-44, not a single Republican voting NO, 3 of whom are running for election again in November: Sam Brownback (R-KS), Chuck Grassley (R-IA), and John McCain (R-AZ). All Senate Democrats up for reelection in November opposed it: Barbara Boxer (D-CA), Russ Feingold (D-WI), Barbara Mikulski (D-MD), Patty Murray (D-WA), Harry Reid (D-NV), Chuck Schumer (D-NY) and Ron Wyden (D-OR)... even Blanche Lincoln (D-AR).

Radical right former derivatives trader Pat Toomey wasn't in the Senate then-- and hopefully never will be-- but he was in the House, where he made a speech in support of his roll-model, Phil Gramm. The speech (above) was in support of credit default swaps, the risky derivatives that contributed so mightily to the financial system meltdown.

In the speech, Toomey said of the legislation that eventually repealed the regulatory framework of Glass-Steagall: “I am particularly pleased that this bill includes an important provision regarding certain derivative transactions, especially credit and equity swaps. These somewhat obscure products are actually very important tools used by businesses, including financial service firms, to manage a variety of risks that they face. This bill reaffirms that swap contracts are legitimate bank products that can be executed and booked in banks and are adequately regulated by and will continue to be regulated by banking supervisors.”

The Philadelphia Inquirer jumped on the story yesterday and tried explaining it in a way average-Joe-and-Jane-voters will understand, running the video on their website, and pointing out that "Toomey has tried to distance himself from derivatives, which he once traded, but video of a 2000 House floor debate found by Democrats shows him advocating for more de-regulation of the exotic financial products."

Toomey urged the House to pass the Commodities Exchange Act because, he said, it would "eliminate most of the cloud of legal and regulatory uncertainty that has shadowed" derivatives since their invention. In fact, he went on to express his hope that the Senate would tweak the bill to "allow greater flexibility in the electronic trading" of over-the-counter derivatives.

Everybody loves Goldman Sachs -- for starters, Tom Tomorrow and its greatest fan, Matt Taibbi

"In the year since [his earlier piece on Goldman Sachs] the public has quickly come to accept that when it comes to the once-great institutions of modern Wall Street, literally no deal that makes money is too low to be contemplated."

-- Matt Taibbi, in a new Rolling Stone piece on Goldman Sachs

by Ken

Ah, so Matt Taibbi hasn't decided to reserve his enthusiasm for the glory that is Goldman Sachs for British readers. (See our notes on his recent testimonial in The Guardian, "Will Goldman Sachs prove greed is God?") Not only has Rolling Stone reposted his celebrated July 2009 encomium, "The Great American Bubble Machine," but the May 13 issue has a brand-new piece, "The Feds vs. Goldman."

The 2009 RS piece, of course, is the source of one of the more picturesque tributes in modern journalim (in boldface below):

The 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.

In case you're wondering about the spirit of the new piece, Matt establishes it early:

Goldman isn't dead – far from it. But this new SEC suit officially places it at the center of a raging national discussion about the hopelessly fucked state of American business ethics. As a halting, first-step attempt at financial regulatory reform makes its way toward a vote in the Senate, the government has finally thrown open the door and let a few of the rottener skeletons tumble out.

On the surface, the failure-to-disclose rap being leveled at Goldman feels like a niggling technicality, the Wall Street equivalent of a tax-evasion charge against Al Capone. The bank will try and – who knows – might even succeed in defending itself in a court of law against these charges. But in the court of public opinion it was doomed the instant the SEC decided to put this ghastly black comedy of a fraud case on the street for everyone to see. Just as Pittsburgh Steeler Ben Roethlisberger will never recover from the image of him (allegedly) waving his dick at a scared 20-year-old coed in the darkened hallway of a Georgia nightclub, Goldman may never bounce back from the SEC's brutal blow-by-blow account of how the bank conspired with a hedge-fund magnate to bend one gullible business partner after another over the edge of the subprime housing market.

Matt takes time to establish his bona fides as a fan of Goldman's new poster boy, "French-born slimeball" Fabrice Tourre, the company's eloquent e-mailer, then notes:

These flighty Tourre e-mails boasting of cashing in on a disaster and chuckling over the "surreal" experience of power-lying right in the face of a business partner are Goldman's very own Ben Roethlisberger drunken dick-waving moment. It is hard to imagine any company from now on doing business with Goldman and not picturing its fruitcake executives text-boasting to each other about the pleasures of screwing over their own clients.

Then he has some fun with Goldman's official denials, summing them up:

[W]ithin the space of a few days, Goldman issued three different explanations, which progressed from (a) we absolutely, positively didn't do it, to (b) if we did do it, we didn't make any money doing it, and finally on to (c) if somebody did it, it was only that French cat Tourre, and here's his head if you want it. These guys couldn't find the truth if it was sitting in their lap playing the ukulele, and that's the basic problem that the entire financial-services sector – an industry that requires trust and confidence to thrive – is struggling to overcome.

Matt recalls with a certain amount of glee the response to his suggestion in the 2009 piece that Goldman was "betting against its clients at the end of the housing boom": "[V]irtually the entire smugtocracy of sneering Wall Street cognoscenti scoffed at the notion that the Street's leading investment bank could be guilty of such a thing."

CNBC's house blowhard, Charlie Gasparino, laughed at the "securities fraud" line, saying, "Try proving that one." The Atlantic's online Randian cyber-shill, Megan McArdle, said Rolling Stone had "absurdly" accused Goldman of committing a crime, arguing that "Goldman's customers for CDOs are not little grannies who think a bond coupon is what you use to buy denture glue." Former Wall Street Journal reporter Heidi Moore hilariously pointed out that Goldman wasn't the only one betting against the housing market, citing the short-selling success of – you guessed it – John Paulson as evidence that Goldman shouldn't be singled out.

The truth is that what Goldman is alleged to have done in this SEC case is even worse than what all these assholes laughed at us for talking about last year.

Even Matt, it turns out, wasn't prepared to credit rumors he'd heard before writing the 2009 piece that Goldman "had gone out and intentionally scared up toxic mortgages and swaps in order to get short of them with sucker bookies like AIG." It "seems funny in retrospect," he notes, but "I foolishly dismissed those tales as being too conspiratorial. . . . "The notion that the bank would actually go out and create big balls of crap that would be designed to fail seemed too nuts even for my tastes."
And Matt's conclusion:

The Goldman case emerges as a symbol of all this brokenness, of a climate in which all financial actors are now supposed to expect to be burned and cheated, even by their own bankers, as a matter of course. (As part of its defense, Goldman pointed out that IKB is a "sophisticated CDO market participant" – translation: too fucking bad for them if they trusted us.) It would be nice to think that the SEC suit is aimed at this twisted worldview as much as at the actual offense. Some observers believe the case against Goldman was timed to pressure Wall Street into acquiescing to Sen. Chris Dodd's loophole-ridden financial-reform bill, which probably won't do much to prevent cases like the Abacus fiasco. Or maybe it's just pure politics – Democrats dropping the proverbial horse's head in Goldman's bed to get their fig-leaf financial-reform effort passed in time for the midterm elections.

Whatever the long-range motives, the immediate effect of the lawsuit is to put Wall Street's crazy fraud ethos on trial in the court of public opinion. For now, at the end of the first quarter, Goldman and most of the other big banks are still winning that case. But the second quarter might be a different story.

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Three Card Monte-- How The Banks And The Congressmen They Own Treat Our Money

It's just too simplistic to blame the financial collapse and all the "disappeared" wealth and jobs America experienced under the Bush Regime and in its aftermath on Republicans. The toxic, even pathological, conservative ideology that extols greed and revels in the Law of the Jungle is prevalent on both sides of the aisle even if it only remains unchallenged on one side. In their highly effective campaign to continue using legal cover to rip off the public, the Finance Sector, since 1990, has poured almost $1.4 billion into the campaigns of candidates for federal office. Why do you think they spend so much money... because they're civic-minded? The average Republican House candidate has gotten $128,484 and the average Democrat has gotten $100,501-- more than half a billion dumped into that cesspool. The 10 most devoted slaves to Wall Street interests currently serving in the Senate? Notice that there are criminals wearing both the red and the blue jerseys.

Joe Lieberman (I-CT)- $10,154,592
Arlen Specter (R/D- PA)- $6,486,535
Richard Shelby (R-AL)- $5,303,030
Mitch McConnell (R-KY)- $5,244,103
Lamar Alexander (R-TN)- $4,931,275
Max Baucus (D-MT)- $4,792,987
Kay Bailey Hutchison (R-TX)- $4,697,838
John Cornyn (R-TX)- $4,582,292
Evan Bayh (D-IN)- $4,469,297
Johnny Isakson (R-GA)- $3,848,624

And honorable mentions for sickeningly devoted Wall Street puppets: John Thune (R-SD- $3,755,561), Dianne Feinstein (D-CA- $3,710,806), Tim Johnson (D-SD- $3,135,515), Bob Corker (R-TN- $3,135,180), Richard "Bank Run" Burr (R-NC- $2,922,171), Ben Nelson (D-NE- $2,839,056), Chuck Grassley (R-IA- $2,612,899), Jim DeMint (R-SC- $2,501,810), Mary Landrieu (D-LA- $2,489,984), Blanche Lincoln (D-AR- $2,450,292) and Robert Bennett (R-UT- $2,412,367). All of the above senators serve Wall Street absolutely and their constituents come last. If every one of them, regardless of party, were removed from office, America would immediately be on a much sounder financial footing. Harry Reid is not incorrect in calling out McConnell as a pawn of Wall Street, but why should anyone listen when he's also cynically supporting Arlen Specter's and Blanche Lincoln's re-election bids?

Yesterday Economics and Law Professor Bill Black, the former spectacularly successful Litigation Director for the Federal Home Loan Bank Board, testified in front of the House Financial Services Committee. His testimony was absolutely chilling even if callow bankster puppet Paul Kanjorski cut him short with a gavel that should have been used to beat the $3,748,391 in barely disguised bribes he's taken from the Financial Sector out of him. It's very much worthwhile reading the full transcript of his testimony and watching the video (below). A few sections that got my blood boiling, even if it left Kanjorski nonplused:

Lehman’s failure is a story in large part of fraud. And it is fraud that begins at the absolute latest in 2001, and that is with their subprime and liars’ loan operations.

Lehman was the leading purveyor of liars’ loans in the world. For most of this decade, studies of liars’ loans show incidence of fraud of 90%. Lehmans sold this to the world, with reps and warranties that there were no such frauds. If you want to know why we have a global crisis, in large part it is before you. But it hasn’t been discussed today, amazingly.

Financial institution leaders are not engaged in risk when they engage in liars’ loans-- liars’ loans will cause a failure. They lose money. The only way to make money is to deceive others by selling bad paper, and that will eventually lead to liability and failure as well.

When people cheat you cannot as a regulator continue business as usual. They go into a different category and you must act completely differently as a regulator. What we’ve gotten instead are sad excuses.

The SEC: we’re told they’re only 24 people in their comprehensive program. Who decided how many people there would be in their comprehensive program? Who decided the staffing? The SEC did. To say that we only had 24 people is not to create an excuse-- it’s to give an admission of criminal negligence. Except it’s not criminal, because you’re a federal employee.

...[E]very day that Lehman remained under its leadership, the exposure of the American people to loss grew by hundreds of millions of dollars on average. Auroroa was pumping out up to 30 billion dollars a month in liars’ loans. Losses on those are running roughly 50% to 85 cents on the dollar. It is critical not to do business as usual, to change.

We’ve also heard from Secretary Geithner and Chairman Bernanke-- we couldn’t deal with these lenders because we had no authority over them. The Fed had unique authority since 1994 under HOEPA to regulate all mortgage lenders. It finally used it in 2008.

They could’ve stopped Aurora. They could’ve stopped the subprime unit of Lehman that was really a liar’s loan place as well as time went by.

This will continue as long as there is no effective accountability. These corporate criminals and the politicians who enable them laugh out public outrage. One of the worst of the Bush economic team, Wall Street darling Rob Portman has the gumption to actually be running for the open Ohio Senate seat-- instead of spending his energy trying to keep his ass out of prison.

Paul Krugman says: "Much of the financial industry has become a racket," and it's urgent that we "lower the boom" on the racket

Update: Tom Toles weighs in on Goldman Sachs --

"If we don't lower the boom on these practices, the racket will just go on."

-- Paul Krugman, in his NYT column today, "Looters in Loafers"

by Ken

If we come away with two points from today's Krugman column today, we might stand a chance of steering our way through the shoals of financial industry reform.

The first concerns what's actually at issue in the SEC's civil action against Goldman Sachs.

SEC VOTE ON GOLDMAN SACHS CASE WAS 3-2

Business Week reports this afternoon that the SEC vote to sue Goldman Sachs was 3-2, with chair Mary Schapiro joining the two Democratic commissioners in opposition to the two Republican commissioners. The point of the disclosure, presumably, is to undermine the case by letting the world know the SEC was divided on it. What it in fact suggests is that where Republicans are concerned, when rich white people are stealing, it's just business as usual.

I'm going to make an embarrassing admission here that readers are free to second or not in the privacy of their own consciences: I didn't actually read every last word of coverage about the complaint. It's even possible that I didn't read more than every fifth or 12th word. And it's just possible that what I came away with was some version of the notion that those nasty finaglers got caught making a killing by betting that the housing bubble -- you know, the one that then-Fed Chairman "Mumbles" Greenspan couldn't locate -- would burst.

There doesn't seem much doubt now that a lot of Wall Street's "Bubble? What Bubble?" sharpsters were indeed betting against the economy, even as they were selling a different story to their clients, but that's not what's got them in trouble with the SEC, for the simple reason that it's not illegal. As Krugman explains:

We’ve known for some time that Goldman Sachs and other firms marketed mortgage-backed securities even as they sought to make profits by betting that such securities would plunge in value. This practice, however, while arguably reprehensible, wasn’t illegal. But now the S.E.C. is charging that Goldman created and marketed securities that were deliberately designed to fail, so that an important client could make money off that failure. That’s what I would call looting.

And Goldman isn’t the only financial firm accused of doing this. According to the Pulitzer-winning investigative journalism Web site ProPublica, several banks helped market designed-to-fail investments on behalf of the hedge fund Magnetar, which was betting on that failure.

You get the difference, I trust. The charge is "that Goldman created and marketed securities that were deliberately designed to fail, so that an important client could make money off that failure." Securities that were deliberately designed to fail. It appears that we may actually have laws that at least frown on this (remember, so far it's only civil, not criminal, charges that have been brought), though I'm prepared to believe that if we let those Republicans who are so outraged that they aren't getting to write the financial reform legislation to have their way, we'll wake up finding that such actions, far from being frowned on, will earn the participating banksters valuable points toward premiums like digital cameras or a set of matched luggage.

Certainly that's the message that "Sunny John" Boehner and the rest of the GOP Creep Corps have been trying frantically to communicate to the Wall Streeters: Show us a little love and we'll take care of you. All the while that their Noise Machine is Luntzing the Dems as the Party of Bankster Bailouts.

Of course the Dem creeps in the crosshairs have mostly themselves to blame. How humiliating is it these days to find yourself the target of something said by Republicans which actually contains a grain of truth? When the Luntzers screech that Wall Street and the banksters were in the pockets of the Dems, or vice versa, well, haven't they been in the most recent election cycles? Isn't this the very achievement that won Chuck Schumer his position of some influence in the Senate Dem leadership? What's more an administration whose leading economic-policy lights are Larry Summers and Timmy Geithner, and is staffed with people of their disposition, is poorly positioned to defend itself against charges of collusion with the Big Money industry.

Of course the parts that the GOP Creep Corps leaves out are (a) the cooling off of the Wall Street-Dem romance as crazed Dems have indicated a determination to enact some sort of financial-sector regulatory reform, and (b) the Creep Corps's own assiduous campaign to woo the Wall Street hoods back into the GOP fold. After all, if there's one thing the Big Money players know, it's how to recognize Which Side Their Bread Is Buttered On. As Reggie Perrin's old boss C.J. might have said, "I didn't get where I am today by not knowing which side my bread is buttered on."

Which brings us to the other point we need to take away from today's Krugman column:

The main moral you should draw from the charges against Goldman, though, doesn’t involve the fine print of reform; it involves the urgent need to change Wall Street. Listening to financial-industry lobbyists and the Republican politicians who have been huddling with them, you’d think that everything will be fine as long as the federal government promises not to do any more bailouts. But that’s totally wrong — and not just because no such promise would be credible.

For the fact is that much of the financial industry has become a racket — a game in which a handful of people are lavishly paid to mislead and exploit consumers and investors. And if we don’t lower the boom on these practices, the racket will just go on.

And on and on.


POSTSCRIPT: CAN WE DO WORKABLE FINANCIAL REFORM?

As Paul Krugman noted on his NYT blog yesterday, a talk he gave last week at an economic conference provided him with an occasion to update and clarify his thinking on the subject of financial reform, which he considers "a much messier debate" than the one on health care reform. Last night he posted "a version of what I said," noting that this all happened before the SEC filing against Goldman Sachs.

Krugman has been widely criticized for not attaching enough importance to the problem of the size (and therefore presumed too-big-to-failness) of the financial institutions that need to be brought under control. And in his breakdown of six "competing views of what the problem is all about," including a couple that are fatuous but nevertheless vociferously advanced by pugnaciously ignorant chunks of the populace. (One of these, "government intervention," blames it all on the Community Reinvestment Act, and I myself let myself get drawn into a protracted comment exchange with a right-wing peabrain who wouldn't let go of his psychotic delusions even though every word he said was crap excreted by liars and imbeciles who almost bragged about their contempt for reality. I learned, as if I needed the lesson, that someone who has sworn to uphold lies and delusions to his dying breath can be counted on to keep that faith.)

Krugman still isn't buying size as a central issue.

My view is that I’d love to see those financial giants broken up, if only for political reasons: it’s bad to have banks so big they can often write laws. But I’m not sold on the centrality of too big to fail to the crisis, for reasons best explained in terms of the second doctrine.

That "second doctrine," his "personal preference," is what he calls "shadows": "The rise of shadow banking, institutions that fulfill banking functions but evade the regulatory regime, has undermined stability." To this he would add "some allowance for" Nos. 3 and 4, "opacity" ("We’ve come to rely on complex financial instruments that neither regulators nor the private sector [understand]") and "predation" ("Financial firms deliberately misled consumers and investors").

I bring this up, though, for the later section of the talk, in which Krugman "identif[ies] three forms of reform proposal," and pretty well knocks the stffin gout of all three. He concludes:

So where does that leave us? For sure we have to try to update financial regulation for the 21st century, and for sure doing so will help avert the worst in the future. But I have to admit that I’m not wildly optimistic about just how successful we’ll be.

Does it help to keep in mind that today's column, with its determined talk of lowering the boom on the financial racketeers, was written well after Krugman gave this not-wildly-optimistic talk? Um, for me, I think not so much.

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E. J. Dionne Jr. targets Wall Street, and winds up with the Teabaggers in the crosshairs as well

"If you want to understand why President Obama's standing in the polls is not where it used to be -- and also why the populist-sounding Tea Party movement has gained so much traction -- consider that some significant part of the American voting population has come to see the administration as both too liberal and too tied to Wall Street."

-- E. J. Dionne Jr. in his Washington Post column
today, "Obama needs to cut his Wall Street tag"

by Ken

You can see the Washington Post trying desperately to combat the common perception that it's a "liberal" paper, not least as Fred Hiatt keeps stockpiling more and more right-wing and ultra-right-wing columnists. What are there now, 20 of them? 30? Really, now, wouldn't you figure that with just George Will and Chucky Toyhammer you're generating an entire planet's worth of thuggish, pompous, plug-ignorant imbecility?

You have to figure that the Gathering of the Op-Ed Neanderthals represents an increasingly desperate attempt to "live down" the embarrassment, from the Hiattesque mindset, of continuing to publish E. J. Dionne Jr., Harold Meyerson, and Eugene Robinson. Given the present-day inhospitableness of their surroundings, I'm filled with admiration that they continue to bring as much sense as they do to the Post op-ed wasteland.

Which is a fancy way of dressing up that I just loved Dionne's column today. His basic point is that, possibly just in time, the Obama administration may be taking economic steps -- the expected plan to tax the banksters to recover the cost of the bailouts, and ideas we're hearing for at least a partial pullback from the brilliant scheme to tax the so-called "Cadillac" health plans -- that might enable it to escape from what he considers the double whammy of being perceived in the heartland as "Wall Street liberals." He makes some elegantly wise points among his conclusions, but there's also considerable the pleasure along the way of encountering points we just don't expect to encounter these days in the opinion aisles of the infotainment news media.

About liberalism, for example:

"I personally despise the way the noble liberal idea has been devalued, but face it: Conservatives have had great success in discrediting liberalism, to the point that most liberals dare not call themselves by their own name."

Or about the president's compromised credentials as a Wall Street liberal:

"Never mind that Obama is not really all that liberal (read any of the liberal bloggers if you doubt this) and never mind that Wall Street is fighting Obama on financial reform, particularly on his excellent proposal to create a financial consumer protection agency. The fact is that the Wall Street tag is sticking, and Obama was always going to battle the L-word."

Or, in crediting the president with "finally trying to address what has been an enormous distortion in our political debate" with regard to the whole problem of government deficits, he bristles at --

"the tired notion that the deficits can be cured if we just reduce 'entitlements,' which I put in quotation marks because I'm weary of people using this highfalutin word to dodge saying directly that they want deep cuts in Medicare and Social Security.

"Actually, health-care reform is designed in part to contain the long-term growth of Medicare costs. And the savings that can be wrung out of Social Security are limited. In the end, if you care about fiscal responsibility, you have to favor raising taxes."

"But whose taxes?' he asks. And now he moves into high gear:

The truth is that we've had a large income and wealth shift in the United States, in favor of not just the rich in general but the financial sector in particular. We are overtaxing wage and salary income relative to investment income, and overtaxing the manufacturing and service sectors relative to the financial industry. It's why Warren Buffett has said that he's taxed at a lower rate than his receptionist.

Moving the tax burden toward the financial sector is thus a matter of both justice and political necessity. The best thing that could happen to Obama would be for him to have a fight or two with Wall Street and the big banks on behalf of balancing the budget. It is precisely the way to shake off both ends of the Wall Street Liberal tag.

This also has the benefit of challenging the Tea Party movement to come clean on whether it really is populist, or merely using populist rhetoric to pursue the same old low-tax, low-regulation agenda that got us into this mess.

Will the Tea Party crowd come out against taxes on banks and finance in the name of their libertarian principles? If they do, what kind of populists are they?

After a year in which progressives played defense, it's time to call some bluffs.

And when the dust settles, he's got the Teabaggers in the crosshairs. Now that's nifty columnizing!

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Don't Hang The DJ-- Hang The Banksters

The big Wall Street banks have already taken defensive measures to protect themselves from physical attack... on the off-chance that the American people ever figure out that they're the real enemy of our families and our prospects for prosperity. But this weekend the NY Times reported that the big banks are girding themselves for trouble as they prepare to hand out the mega-bonuses again.

The bank bonus season, that annual rite of big money and bigger egos, begins in earnest this week, and it looks as if it will be one of the largest and most controversial blowouts the industry has ever seen.

Bank executives are grappling with a question that exasperates, even infuriates, many recession-weary Americans: Just how big should their paydays be? Despite calls for restraint from Washington and a chafed public, resurgent banks are preparing to pay out bonuses that rival those of the boom years. The haul, in cash and stock, will run into many billions of dollars.

Industry executives acknowledge that the numbers being tossed around-- six-, seven- and even eight-figure sums for some chief executives and top producers-- will probably stun the many Americans still hurting from the financial collapse and ensuing Great Recession.

I tweeted about this yesterday and someone who follows my tweets suggested that the blame belongs with the politicians, rather than with the banksters. The politicians do, after all, enable them-- when the price is right. But taking that logic a short step further, why not blame the voters? After all, it's the voters who enable to politicians-- and our payoff is just psychic and rarely very satisfying.

When I was in a position to hand out substantial bonuses, I made sure the assistants who did so much of the work, got a substantial piece of the action. And I bet there are an awful lot of assistants at GoldmanSachs who are making considerably less than the company average of nearly 600,000/per employee. (Imagine how some poor schlub at JPMorganChase feels; they only average $463,000 in bonuses.) So just imagine what the dozen guys at the tippy-top of the pyramid (scheme) are taking home. A couple making over $10,000,000? You better believe it!

Many executives are bracing for more scrutiny of pay from Washington, as well as from officials like Andrew M. Cuomo, the attorney general of New York, who last year demanded that banks disclose details about their bonus payments. Some bankers worry that the United States, like Britain, might create an extra tax on bank bonuses, and Representative Dennis J. Kucinich, Democrat of Ohio, is proposing legislation to do so.

Those worries aside, few banks are taking immediate steps to reduce bonuses substantially. Instead, Wall Street is confronting a dilemma of riches: How to wrap its eye-popping paychecks in a mantle of moderation. Because of the potential blowback, some major banks are adjusting their pay practices, paring or even eliminating some cash bonuses in favor of stock awards and reducing the portion of their revenue earmarked for pay.

...Even some industry veterans warn that such paydays could further tarnish the financial industry’s sullied reputation. John S. Reed, a founder of Citigroup, said Wall Street would not fully regain the public’s trust until banks scaled back bonuses for good-- something that, to many, seems a distant prospect.

“There is nothing I’ve seen that gives me the slightest feeling that these people have learned anything from the crisis,” Mr. Reed said. “They just don’t get it. They are off in a different world.”

In his column yesterday, Frank Rich posited that "Americans must be told the full story of how Wall Street gamed and inflated the housing bubble, made out like bandits, and then left millions of households in ruin. Without that reckoning, there will be no public clamor for serious reform of a financial system that was as cunningly breached as airline security at the Amsterdam airport. And without reform, another massive attack on our economic security is guaranteed." No one-- not the banksters and not the politicians-- are especially worried. They've got the system gamed and-- as you may have noticed-- there's no consequences at all, not only not legal consequences; there aren't even market consequences, at least not for the guys on top. Rich is hoping Phil Angelides and his Pecora-style commission will come up with something-- but Rich is too savvy to trick himself into believing it.

Angelides, the former California treasurer who is the inquiry’s chairman, told me in interviews late last year that he has been busy deploying a tough investigative staff and will not allow the proceedings to devolve into a typical blue-ribbon Beltway exercise in toothless bloviation.

He wants to examine the financial sector’s “greed, stupidity, hubris and outright corruption”-- from traders on the ground to the board room. “It’s important that we deliver new information,” he said.
“We can’t just rehash what we’ve known to date.” He understands that if he fails to make news or to tell the story in a way that is comprehensible and compelling enough to arouse Americans to demand action, Wall Street and Washington will both keep moving on, unchallenged and unchastened.

Angelides gets it. But he has a tough act to follow: Ferdinand Pecora, the legendary prosecutor who served as chief counsel to the Senate committee that investigated the 1929 crash as F.D.R. took office. Pecora was a master of detail and drama. He riveted America even without the aid of television. His investigation led to indictments, jail sentences and, ultimately, key New Deal reforms-- the creation of the Securities and Exchange Commission and the Glass-Steagall Act, designed to prevent the formation of banks too big to fail.

As it happened, a major Pecora target was the chief executive of National City Bank, the institution that would grow up to be Citigroup. Among other transgressions, National City had repackaged bad Latin American debt as new securities that it then sold to easily suckered investors during the frenzied 1920s boom. Once disaster struck, the bank’s executives helped themselves to millions of dollars in interest-free loans. Yet their own employees had to keep ponying up salary deductions for decimated National City stock purchased at a heady precrash price.

Trade bad Latin American debt for bad mortgage debt, and you have a partial portrait of Citigroup at the height of the housing bubble. The reckless Citi executives of our day may not have given themselves interest-free loans, but they often walked away with the short-term, illusionary profits while their employees were left with shredded jobs and 401(k)’s. Among those Citi executives was Robert Rubin, who, as the Clinton Treasury secretary, helped repeal the last vestiges of Glass-Steagall after years of Wall Street assault. Somewhere Pecora is turning in his grave.

Rubin has never apologized, let alone been held accountable. But he’s hardly alone. Even after all the country has gone through, the titans who fueled the bubble are heedless. In last Sunday’s Times, Sandy Weill, the former chief executive who built Citigroup (and recruited Rubin to its ranks), gave a remarkable interview to Katrina Brooker blaming his own hand-picked successor, Charles Prince, for his bank’s implosion. Weill said he preferred to be remembered for his philanthropy. Good luck with that.

Among his causes is Carnegie Hall, where he is chairman of the board. To see how far American capitalism has fallen, contrast Weill with the giant who built Carnegie Hall. Not only is Andrew Carnegie remembered for far more epic and generous philanthropy than Weill’s-- some 1,600 public libraries, just for starters-- but also for creating a steel empire that actually helped build America’s industrial infrastructure in the late 19th century. At Citi, Weill built little more than a bloated gambling casino. As Paul Volcker, the regrettably powerless chairman of Obama’s Economic Recovery Advisory Board, said recently, there is not “one shred of neutral evidence” that any financial innovation of the past 20 years has led to economic growth. Citi, that “innovative” banking supermarket, destroyed far more wealth than Weill can or will ever give away.

Even now — despite its near-death experience, despite the departures of Weill, Prince and Rubin-- Citi remains as imperious as it was before 9/15. Its current chairman, Richard Parsons, was one of three executives (along with Lloyd Blankfein of Goldman Sachs and John Mack of Morgan Stanley) who failed to show up at the mid-December White House meeting where President Obama implored bankers to increase lending. (The trio blamed fog for forcing them to participate by speakerphone, but the weather hadn’t grounded their peers or Amtrak.) Last week, ABC World News was also stiffed by Citi, which refused to answer questions about its latest round of outrageous credit card rate increases and instead e-mailed a statement blaming its customers for “not paying back their loans.” This from a bank that still owes taxpayers $25 billion of its $45 billion handout!

If Citi, among the most egregious of Wall Street reprobates, feels it can get away with business as usual, it’s because it fears no retribution. And it got more good news last week. Now that Chris Dodd is vacating the Senate, his chairmanship of the Banking Committee may fall next year to Tim Johnson of South Dakota, home to Citi’s credit card operation. Johnson was the only Senate Democrat to vote against Congress’s recent bill policing credit card abuses.

Though bad history shows every sign of repeating itself on Wall Street, it will take a near-miracle for Angelides to repeat Pecora’s triumph. Our zoo of financial skullduggery is far more complex, with many more moving pieces, than that of the 1920s. The new inquiry does have subpoena power, but its entire budget, a mere $8 million, doesn’t even match the lobbying expenditures for just three banks (Citi, Morgan Stanley, Bank of America) in the first nine months of 2009. The firms under scrutiny can pay for as many lawyers as they need to stall between now and Dec. 15, deadline day for the commission’s report.

I wonder how many people will take Rich's warning of a ticking time bomb seriously. Let me guess that no one will, at least no one who will do one damn thing about it. or is Ron Paul's day coming?

Have the White House coconspirators with Big Money interests become so shameless that they don't even feel a need to cover their tracks?

"[A]t the company where I work, as at many others, the latest round of layoffs will be completed by Christmas. Even for the survivors it feels a little like serial deaths in the family. And who believes we're near the end of this story? For all of Wall Street's and Washington's rumors of a recovery, the fate of Americans on the ground remains very much up in the air."

-- Frank Rich, in his NYT column yesterday,
"Hollywood's Brilliant Coda to America's Dark Year"

"[White House economic adviser Larry] Summers said flatly [on ABC's This Week With George Stephanopoulos] that 'everyone agrees the recession is over.' But on NBC's 'Meet the Press' Christina Romer, another White House economic adviser, countered: 'I'm not going to say the recession is over until the unemployment rate is down to normal levels.' Ms. Romer, chairwoman of the Council of Economic Advisers, placed that figure in the 5 percent range."

-- from a NYT report by Joseph Berger,
"Summers Predicts Job Growth by Spring"

by Ken

If you're following "Is the recession over or is it ain't?" split within the White House economic team, you may be relieved to learn that none other than our own economic Mr. Sunshine (and Clarity) is on the job, bridging the gap:

[Also on Meet the Press] Alan Greenspan, chairman of the Federal Reserve from 1987 to early 2006, tried to reconcile the contradiction between the two presidential advisers by distinguishing between economic activity and joblessness. The low point in terms of economic activity was reached in June or July, he said. But, he added, “merely having gotten by the bottom is not all that terrific because, by definition, at the bottom is when things are worse.”

Now don't tell me that doesn't make you feel better. Or maybe worse, I'm not exactly sure.

It seems as if Larry Summers is brimful of confidence that the Obama administration has this little economic hiccough we've been through under control. In his TV appearance, Mr. Berger reports him saying:

"[I]t doesn't cost anything to encourage banks, as the president will be doing, to meet their responsibilities and expand the flow of credit to small business." He said the president will remind the bankers of what the federal government did to bail out banks when they were in trouble, "that no major bank would be intact, would be in a position to pay bonuses, if that extraordinary support had not been provided."

The president, he said, "will be talking with them about what they can do to support enhanced lending to customers across the country."

"We were there for them and the banks need to do everything they can to be sure they're there for customers across this country," he said.

Which makes you wonder, are Mr. Summers and the president thinking of the same bankers, the same banksters, who've been thumbing their noses at us since they crashed the economy? Are these really people who are going to respond to friendly exhortations from their pals in the White House to moderate even slightly their all-consuming greed? the heck should they? Huh? Huh? Who's gonna make 'em? Huh? Huh?

Even in political terms, is this economic fantasyland that the White House seems to have become not a disaster in the making? The administration champions of the Wall Street and bankster predators, not to mention Master Rahm Emanuel's criminally bumbling political operation, which has made it clear that it serves no one except the economic elites, have left it to an uncaring, born-to-be-bought crook like Miss Mitch McConnell to voice what most Americans believe: "A sharp dissenter from Mr. Summers's declaration that the recession is over was Senator Mitch McConnell of Kentucky, the Republican minority leader, who said that, given a 10 percent national unemployment rate and 11 percent in Kentucky, 'I don't think it's over.'"

Miss Mitch has spent his entire political career assisting the raping and plundering of the average American, and now the garbage brains of the Democratic "center" are doing everything in their power to make the lying slimeball a populist hero. This can't just be economic and political dimwittitude. Masters Larry and Rahm appear so secure in their allegiance to Big Money that they don't feel any need to cover their tracks.

Somebody here has gone nuts, and fortunately for those of us who look on with astonishment and horror, Frank Rich suggests in his column today that it's not our side.

I suspect that the column is going to sell more than a few tickets for the upcoming Christmas movie Up in the Air, which stars George Clooney as a guy who works for a company that contracts to do other companies' firings. "How could a film with that premise be a Christmas hit in a country reeling from the highest unemployment rate in decades?" Rich asks. "By using the power of pop culture to salve national wounds that continue to fester in the real world."

He doesn't give away too much more about the movie, bless him, but he has some trenchant observations about conditions that make the country potentially receptive to its subject.

Here is an America whose battered inhabitants realize that the economic deck is stacked against them, gamed by distant, powerful figures they can't see or know. "Up in the Air" may be a glossy production sprinkled with laughter and sex, but it captures the distinctive topography of our Great Recession as vividly as a far more dour Hollywood product of 70 years ago, "The Grapes of Wrath," did the vastly different landscape of the Great Depression.

Of the potential receptiveness of present-day society to a takedown of the Reign of Big Money, Rich writes later:

In rolling out his latest jobs initiative last week, President Obama said, "Sometimes it's hard to break out of the bubble here in Washington and remind ourselves that behind these statistics are people's lives, their capacity to do right by their families." True enough, and in this movie you see a few of the lives behind the statistics, however fleetingly. But the point of "Up in the Air" is not to deliver the message that mass unemployment is a terrible tragedy. We hardly need a movie -- or a politician -- to deliver that news at this late date.

What gives our Great Recession its particular darkness -- and gives this film its haunting afterlife -- is the disconnect between the corporate culture that is dictating the firing and the rest of us. In the shorthand of the day, it's the dichotomy between Wall Street and Main Street, though that oversimplifies the divide. This disconnect isn't just about the huge gap in income between the financial sector and the rest of America. Nor is it just about the inequities of a government bailout that rescued the irresponsible bankers who helped crash the economy while shortchanging the innocent victims of their reckless gambles. What "Up in the Air" captures is less didactic. It makes palpable the cultural and even physical chasm that opened up between the two Americas for years before the financial collapse.

The private-equity deal makers who bought and sold once-solid companies like trading cards, saddling them with debt, never saw the workers whose jobs were shredded by their cunning games of financial looting. The geniuses in Washington and on Wall Street who invented junk mortgages and then bundled and sold them as securities didn't live in the same neighborhoods as the mortgagees, small investors and retirees left holding the bag once the housing bubble burst.

Those at the top are separated from the consequences of their actions. They are exemplified by Robert Rubin, formerly of Citigroup and a mentor to both Obama's Treasury secretary and chief economic adviser. He looked the other way when his bank made ruinous high-risk bets, and then cashed out and split, leaving taxpayers to pay for the wreckage while he escaped any accountability. Such economic wise men peer down at the country from a hermetically sealed bubble of privilege and self-interest, much as Ryan does from the plane flying him to his next mass firing. And they tend to think, as Lloyd Blankfein of Goldman Sachs notoriously put it, that they are doing "God's work" to sustain our free-market system.

As if to reassure me that I'm not entirely nuts, and indeed am not the only one who's noticed that Masters Larry and Rahm are living in a cocooned fantasyland, Rich writes:

Last week Goldman Sachs announced it would grant some of this year's bonuses in stock, not cash, to try to stanch the public backlash to the record profits it piled up thanks to government largess. But Washington remains strangely oblivious to the mood out there. Financial reform has been embattled on Capitol Hill, where the financial industry has spent $344 million on lobbying in the first three quarters of 2009. The big ratings agencies that gave triple-A stamps of approval to Wall Street's junk are back to business as usual. Bank of America and Citi are racing to return TARP money to Washington not because they have necessarily recovered but because they want to shower rewards on their executives with impunity.

The rage engendered by this status quo is across the political map. As unlikely as it sounds, Ron Paul and Jim DeMint, political heroes of the tea party right, and Bernie Sanders and Alan Grayson, similarly revered on the left, have found a common cause in vilifying the Federal Reserve Bank and its chairman, Ben Bernanke. The Fed is hardly the root of all evil, but you can see why it is a handy scapegoat. Like the institutions it failed to police during the boom, it wields its power from on high with little transparency to those below.

Then he concludes with the paragraph I've quoted at the top of this post. Which concludes, you'll recall:

"For all of Wall Street's and Washington's rumors of a recovery, the fate of Americans on the ground remains very much up in the air."

#

Do The Banksters Have Food Tasters Too?

Beware the exploding latte

While the Israeli military, the IDF, organizes an innovative approach in establishing a New Media unit to fight Israel's enemies on Twitter and Facebook-- I was contacted by one of their agents based in West Palm Beach this morning-- Goldman Sachs executives are getting ready to do battle as well. This morning Alice Schroeder reported for Bloomberg that "senior Goldman people have loaded up on firearms and are now equipped to defend themselves if there is a populist uprising against the bank."

I remember when some sharp-talking Mafia-related thugs persuaded the Japanese that they should run SONY Records. These were my colleagues in the music business and they wore pistols strapped to their ankles. I don't think they were worried about the proletariat per se, though-- just angry rappers who didn't understand the "way things work"-- meaning, how labels sell records and then keep all the profits for themselves through bookkeeping tricks that leave the "talent" with about what Goldman Sachs leaves its victims. Over the weekend I did a post about how interns are becoming the new slave labor pool for corporate America and used Warner Music as the example. I forgot to mention that with all the hundreds of layoffs and the gigantic downsizing of the company, the chairman still has a personal bodyguard on staff. Damned rappers!

In any case, I am really looking forward to the first shootout between power mad banksters from MorganStanleySmithBarney and GolmanSachs and can only pray that some crooked BankAmerica executives get caught in the cross fire. After all, it's obvious the only way these people, having paid over $6 billion in political protection money ($3,806,517,963 in lobbying since 1998 and another $2,307,542,964 in direct pay-offs to politicians themselves), will ever get any justice at all-- unless the Frankenstein's monster of the teabagger movement they created and financed turns on them!

But, alas, angry teabaggers are more likely to get all their information-- every bit of it, even if it moots their own personal reality-- from the likes of Glenn Beck, Rush Limbaugh, Sean Hannity and Michael Savage than from a real populist like, say, Robert Reich. Had they read Reich yesterday they might be crashing down those Wall Street barricades today.

One out of four homeowners is now under water, owing more on their homes than the homes are worth. Why? The biggest single factor behind the housing crisis is rising unemployment. According to the latest ABC-Washington Post poll, one out of every three Americans has either lost their job or lives in a household with someone who has lost a job. Today it takes two and sometimes three incomes to buy the groceries and pay the mortgage or the rent. So if one of those incomes is gone, a homeowner can’t make the payment.

The scourge of unemployment is splitting America into three groups:

1. the third just mentioned, whose households are in danger of losing their homes and whose kids are surviving on food stamps (that’s up to one in four children in America today);

2. the vast majority of Americans who are managing but worried about keeping their jobs and homes; and

3. a small number who are taking home even more winnings than they did in the boom year 2007.

Prominent among category (3) are Wall Street bankers, many of whom are now concluding their most profitable year ever. Goldman Sachs (GS) is so flush it’s preparing to give out bonuses in a few weeks totaling $17 billion. That will mean eight-figure compensation packages for lots of Goldman executives and traders. JPMorgan Chase (JPM) is rumored to have a bonus pool of around $5 billion. The three other major Wall Street banks are ratcheting up their compensation packages so their “talent” won’t be poached by Goldman or JPMorgan.

Wall Street is booming again in large part because the rest of America-- categories (1) and (2), above-- bailed it out to the tune of $700 billion last year. The Street has repaid some of that but, according to the bailout program’s inspector general, much of it is gone forever. For example, the taxpayer money that bailed out giant insurer AIG went directly through AIG (AIG) to its “counterparties” like Goldman Sachs-- to whom Tim Geithner, according to the inspector general, gave away the store. As Goldman Sachs prepares to dole out some $17 billion to its executives and traders, it’s worth noting that Goldman received $13 billion a year ago from the rest of us via AIG and Geithner, no strings attached.

Apparently That Hope And Change Thing Doesn't Include Wall Street Predators

American president's, regardless of party, usually pick an economic team friendly to Wall Street. In fact, key Wall Street players usually are the heart and "soul" of presidential economic teams. Peter Orszag may be a decent OMB director but the team is mostly a bunch of predatory bankster shills, barely an iota better than the disastrous team Bush fielded. Tim Geithner, Lawrence Summers, Robert Rubin and the rest of the team may get high marks from Villagers for being "bipartisan," but, clearly, they work for the corporate managerial elites and ownership class, not for the American people. Geithner, under attack from the right-- an attack motivated exclusively by partisan rancor-- for advocating basically GOP approaches to economic policies, has few progressive voices defending him. Progressives don't want to attack Obama but they sure wish Geithner and Summers would fall off a cliff-- or onto their swords. Today the White House seems to be floating rumors that they could get someone even worse than Geithner for Treasury Secretary, someone like JPMorganChase CEO Jamie Dimon.

Right now Geithner is as busy defending the status quo as any Republican Secretary of the Treasury would. He vociferously opposes the kind of financial transaction tax that the world needs the U.S. to buy into before moving forward.

The fourth highest ranking Democrat in the House of Representatives, John Larson, has put forward a plan to impose a 0.25% tax on derivatives transactions. Another congressman, Peter DeFazio, has recruited five colleagues and an array of unions to champion his proposal for a much broader tax... Wall Street remains opposed, arguing that any measure would hurt wealth generation. But Dean Baker, co-director of the Washington-based Center for Economic and Policy Research, said the US treasury could be persuaded to see a tax as an aid in plugging a huge looming budget deficit. "I think it has a chance," said Baker. "People are really, really angry with the financial industry. We do have budget deficits and this is getting a lot of interest."

Among those signed up to DeFazio's plan are America's largest union confederation, the AFL-CIO, and activist groups such as Americans for Financial Reform and the Campaign for America's Future.

The Obama administration, which has been reluctant to cast itself as anti-Wall Street, is unenthusiastic. The US treasury secretary, Timothy Geithner, said this week that he has "not seen a version of that tax that I think would be appropriate for our country," though activists suggested this was a softening of his line from earlier in the month, when Geithner simply said that a financial transaction tax was "not something we are prepared to support."

The speaker of the House, Nancy Pelosi, said a Tobin tax was "not a priority" but she did not rule it out, saying simply that the US could not act single-handedly: "We couldn't do it alone, we'd have to do it as an international initiative."

Wall Street, having largely dodged any substantive crackdown on bonuses, is yet to take the idea seriously. Americans, who are less likely than the British to have employer-managed pension plans, invest directly in the stockmarket more commonly than Europeans, and any tax would face stiff opposition from free marketeers.

The Democratic House leadership, despite signals from Obama's Wall Streeters, are moving forward, albeit cautiously, with a tax on large financial transactions to help pay for jobs-creation legislation. The Democrats pushing it-- populists Pete DeFazio (D-OR), Michael Arcuri (D-NY), Ed Perlmutter (D-CO), Bruce Braley (D-IA), Betty Sutton (D-OH), Bob Filner (D-CA) and Tom Perriello (D-VA)-- want to raise $150 billion a year with the transaction tax, half to pay down the deficit and half to fund job creation efforts.

The tax rate would range from 0.02 percent for swaps, futures and credit-default swaps to 0.25 percent for stocks, according to the lawmakers’ letter. Options would be taxed at the rate that applies to the type of the underlying asset.

The tax would eliminate the incentive for “excessive speculation because much of the excessive risk on Wall Street is high-volume, short-term speculative trading,” the letter said. “We must make it clear to our constituents that we know Main Street is suffering and a restored Wall Street should now share in its recovery with everyone else.”

The tax would be refunded for transactions less than $100,000 and for those involving assets kept in individual retirement accounts, education savings accounts and health savings accounts, according to the letter.

The organizations that control and carefully steer the teabagger groups are hysterically opposed but feel there is little to fear because of adamant opposition in the highly bought-off Senate. Surely it won't help that yesterday reports seeped out that Goldman Sachs only pays an effective 1% corporate income tax-- $14 million for Bush's last year in office (2008), down drastically from the $6 billion they paid in 2007.

U.S. Representative Lloyd Doggett, a Texas Democrat who serves on the tax-writing House Ways and Means Committee, said steps by Goldman Sachs and other banks shifting income to countries with lower taxes is cause for concern.

“This problem is larger than Goldman Sachs,” Doggett said. “With the right hand out begging for bailout money, the left is hiding it offshore.”

Must Watch TV Tonight: PBS' Front Line Exposes Who Besides The Regular Republican Suspects Enabled The Financial Crisis

Trying again

Short answer: Rubin, Greenspan, Summers... and Geithner-- as much the enemies of financial regulation as any slimoid, bought-and-paid for Republican. And then there was, "buried deep in the bureaucracy," Brooksley Born, chairwoman of the Commodities Futures Trading Commission, who saw right through what these banksters were up to-- and blew the whistle, or at least tried to. She understood derivatives. No one would listen. Instead they shut her up. And the Fed continued to inflate an economy based on businesses too big to fail that were pre-destined for failure. When Republicans tried blaming Clinton for the inevitable crash that ended Bush's regime and doomed McCain's campaign, they weren't all wrong. There was plenty of blame to go around and it started with Reagan's policies, policies tragically embraced by Clinton and still embedded deep inside the Obama White House, where the same cast of malevolent banksters has been joined by Wall Street's very own Chief of Staff, Rahm Emanuel.

Tonight at 9PM PBS is debuting The Warning by Mark Kirk. I heard him being interviewed on the radio this morning. It promises to be a blockbuster of a program and if you ever wonder how all these highly paid smart guys dragged the whole country-- if not much of the world-- into ruin, you really ought to try to watch. Kirk's goal is to open the black box and unearth "the hidden history of the nation's worst financial crisis since the Great Depression." And he's got Born, in her first TV appearance discussing her attempts to straighten out the crooked dealers inside the Administration, to help him with the daunting task.

"I didn't know Brooksley Born," says former SEC Chairman Arthur Levitt, a member of President Clinton's powerful Working Group on Financial Markets. "I was told that she was irascible, difficult, stubborn, unreasonable." Levitt explains how the other principals of the Working Group-- former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin-- convinced him that Born's attempt to regulate the risky derivatives market could lead to financial turmoil, a conclusion he now believes was "clearly a mistake."

Born's battle behind closed doors was epic, Kirk finds. The members of the President's Working Group vehemently opposed regulation-- especially when proposed by a Washington outsider like Born.

"I walk into Brooksley's office one day; the blood has drained from her face," says Michael Greenberger, a former top official at the CFTC who worked closely with Born. "She's hanging up the telephone; she says to me: 'That was [former Assistant Treasury Secretary] Larry Summers. He says, "You're going to cause the worst financial crisis since the end of World War II."... [He says he has] 13 bankers in his office who informed him of this. Stop, right away. No more.'"

Greenspan, Rubin and Summers ultimately prevailed on Congress to stop Born and limit future regulation of derivatives. "Born faced a formidable struggle pushing for regulation at a time when the stock market was booming," Kirk says. "Alan Greenspan was the maestro, and both parties in Washington were united in a belief that the markets would take care of themselves."

None of these guys have been drawn and quartered and none are in prison. Instead they're running the Obama Administration and pushing the economy inexorably over the financial cliff. "It'll happen again if we don't take the appropriate steps," Born warns. "There will be significant financial downturns and disasters attributed to this regulatory gap over and over until we learn from experience." As for effective regulations on derivatives... bizarrely it comes under the aegis of the House's most corrupt committee, Collin Peterson's Agricultural Committee, completely dominated by reactionary Blue Dogs and widely expected to kill any attempt at genuine reform.

A sneak peak at The Warning (Part 1)



(Part 2)

Who Do You Trust?

I walked 47 miles of barbed wire,
Used a cobra snake for a neck tie.
Got a brand new house on the roadside,
Made out of rattlesnake hide.
I got a brand new chimney made on top,
Made out of human skulls.
Now come on darling let's take a little walk, tell me,
Who do you love,
Who do you love, Who do you love, Who do you love.

-Bo Diddley, 1956

"Who do you love?" is a universal question, but I wish someone wrote as good a song called "Who Do You Trust?" It was the Blues Project who got me into this one, although versions by Ronnie Hawkins, Tom Rush, the Yardbirds, Quicksilver, the Dead, The Doors, and eventually Patti Smith and Jesus and Mary Chain all helped make the impression on me that this was one of the greatest songs of all times. If we have to wait for Lady Gaga to come up with something as good... well, Wall Street will own whatever they don't already own.

Yesterday the McClatchey papers ran with an exposé by Kevin Hall: "How Moody's Sold Out Its Ratings-- And Sold Out Investors." Instead of protecting the public, they conspired with Wall Street (and the politicians who turned a blind eye for the hefty campaign donations from the "financial sector," a nice way of saying the organized crime rings that run Wall Street). Last July the SEC "issued a blistering report on how profit motives had undermined the integrity of ratings at Moody's, Standard & Poor's and Fitch Ratings. Basically the ratings agencies thrived on the profits that came from giving the investment banks what they wanted, and investors worldwide, including pension funds and university endowments, "gorged themselves" on bonds backed by U.S. car loans, credit card debt, student loans and, especially, mortgages, the stuff that later came to be known as "toxic assets."

As the housing market collapsed in late 2007, Moody's Investors Service, whose investment ratings were widely trusted, responded by purging analysts and executives who warned of trouble and promoting those who helped Wall Street plunge the country into its worst financial crisis since the Great Depression.

A McClatchy investigation has found that Moody's punished executives who questioned why the company was risking its reputation by putting its profits ahead of providing trustworthy ratings for investment offerings.

Instead, Moody's promoted executives who headed its "structured finance" division, which assisted Wall Street in packaging loans into securities for sale to investors. It also stacked its compliance department with the people who awarded the highest ratings to pools of mortgages that soon were downgraded to junk. Such products have another name now: "toxic assets."

As Congress tackles the broadest proposed overhaul of financial regulation since the 1930s, however, lawmakers still aren't fully aware of what went wrong at the bond rating agencies, and so they may fail to address misaligned incentives such as granting stock options to mid-level employees, which can be an incentive to issue positive ratings rather than honest ones.

And Congress still hasn't done squat. Or that's exactly what Congress has done: squat. Are they all crooks? Last week we took a look at the members of the House Financial Services Committee who take thinly veiled bribes from the financial sector-- basically all 73 of them with the exceptions being Maxine Waters (D-CA- the only member with the ethics to not accept any money from the sector the committee oversees), Ron Paul (R-TX), Steve Driehaus (D-OH), Keith Ellison (D-MN), Mary Jo Kilroy (D-OH), Frank Lucas (R-OK), Carolyn McCarthy (D-NY), Alan Grayson (D-FL), Adam Putnam (R-FL) and Al Green (D-TX). None of the others should even be allowed to vote on matters of reform. But they do-- and as Huffington Post reported yesterday, "two congressional committees in charge of drafting legislation to regulate derivatives have quietly killed a provision that would allow the Federal Reserve to police the complicated financial transactions."

In July, the Obama administration sent a proposed bill to Congress requesting that the Federal Reserve be given authority to oversee those aspects of the financial system that posed "systemic risk"-- in short the kind of firms and activities that could bring down the entire financial system. It would be up to the Fed and other federal regulators to determine what constituted "systemic risk." The trading of derivatives, essentially contracts that can act as insurance against a future event or as just a simple bet, were part of the package.

Derivatives brought down the Wall Street investment banks Lehman Brothers and Bear Stearns and nearly caused insurance giant AIG to go belly up. The reason why they nearly brought down the entire financial system is because every major financial firm and bank were tied to them through derivatives deals. They were all interconnected. But there wasn't a single regulator looking at that. Rather, individual government regulators-- both state and federal-- were overseeing their own individual part of the pie, instead of the whole thing. Obama's plan is an attempt to change that.

In its white paper announcing its detailed plans to overhaul financial regulation, the administration explained how derivatives led to the economy's near-collapse, and why the Federal Reserve would need additional power over them:

"Through credit derivatives, banks could transfer much of their credit exposure to third parties without selling the underlying loans. This distribution of risk was widely perceived to reduce systemic risk, to promote efficiency, and to contribute to a better allocation of resources," the administration said.

"However, instead of appropriately distributing risks, this process often concentrated risk in opaque and complex ways. Innovations occurred too rapidly...for the nation's financial supervisors.

"The build-up of risk in the over-the-counter (OTC) derivatives markets, which were thought to disperse risk to those most able to bear it, became a major source of contagion through the financial sector during the crisis," the administration said. "We propose to enhance the Federal Reserve's authority over market infrastructure to reduce the potential for contagion among financial firms and markets."

Derivatives, the administration said in its draft legislation, "may also concentrate and create new risks and thus must be well designed and operated in a safe and sound manner. Enhancements to the regulation and supervision of systemically important financial market utilities and the conduct of systemically important... activities by financial institutions are necessary to provide consistency, to promote robust risk management and safety and soundness, to reduce systemic risks, and to support the stability of the broader financial system."

Congress' single most corrupt committee, the House Agriculture Committee (a veritable Blue Dog Caucus meeting), acted on Friday on behalf of their bankster donors. They "revised" the Obama proposal to make it bankster-friendly-- i.e., toothless. Illinois Republican crook Judy Biggert did the same thing in the House Financial Services Committee. So again, who do you trust?

On a not unrelated matter, the PCCC is asking, this morning, if Harry Reid is someone we can trust, or someone who will sell us out to his corporate donors. I'm hoping for the best and we'll know soon enough.

Let's Hope The U.S. Economy Is Also Too Big To Fail-- Greedy, Selfish Banksters Are Surely Testing It

God only knows what evil lurks in the unconscious of Wall Street

Sometimes days-- even weeks-- go by without the economic and financial horror stories that have disrupted so many lives and plunged the U.S. into the worst economy since Bush's presidential antecedents-- Harding, Coolidge and Hoover-- ushered this country into the Great Depression. The media hasn't just failed to investigate why Bush chose to follow their model but has frequently just cut out coverage of the examples altogether. Today's NY Times, though, has two, Julie Cresell's front page story on how vulture capitalists and other financial predators profited from the Bush economic model and a very similar piece by David Carr in the Media and Advertising section, Of Layoffs, Bankruptcy and Bonuses. Yesterday on NPR I listened to a former financial sector worker telling the radio audience that he never believed warnings that people on Wall Street were inherently evil-- until he saw it himself. That fact that inherently evil-- at least if overarching greed and avarice are to be considered components of Evil-- people control the U.S. Senate, having purchased its members with over $2.2 billion in "contributions" since 1990 (not to mention another $3.7 billion in "lobbying" since 1998).

In a backdrop of conservative ideology run amuck-- income disparity between the top 1% and the "bottom" 90% is staggering and the banksters are off and running as if Bush were still in the White House, re-remics being their latest ploy to shear the unsuspecting sheep-- populists and progressives in the House want to look at their initial failure in reining in the banksters since Bush and his venal regime were supposedly flushed down history's toilet. (Yesterday Alan Greenspan, king of the Golden Age of private-- unregulated-- equity-- oozed up to the surface again, babbling on ABC's This Week about how things could have been worse.)

On Thursday the House will begin debating credit card rip-offs again. A friendly congressman on the House Financial Services Committee spoke with me off the record yesterday and told me that by giving the credit card companies a 6-month grace period as part of the last batch of legislation they passed, they gave them license to steal for half a year and that the companies were-- and are-- for the most part, playing a very bad faith game, doing everything Congress asked them not to do, from raising rates on customers with perfect credit to raising rates retroactively. I know if he could, this friendly congressman would have the CEOs all arrested Thursday and on trial soon after. If he were a judge...

Anyway, there's no congressional mandate for the kinds of legislation the friendly congressman would like to see passed. The Financial Sector has spread around far too many bribes for that. Last week former New York Governor Eliot Spitzer, someone who as Attorney General of that state learned a little about how Wall Street operates before they were able to deep-six his political career, asked a crucial question the House should be looking into: Why don't any of the Obama administration's financial reforms help middle-class Americans?

Could it be because they're still following the advice of Wall Street itself-- not just Greenspan but equally inherently evil Wall Street characters like Larry Summers, Tim Geithner and Rahm Emanuel-- and wasting all our resources bailing out banksters instead of throwing them in prison? Spitzer points out 2 of Obama's biggest mistakes in sticking with the Bush economic agenda:

First, the administration failed to go to the mat to give judges the power to reform mortgages in the bankruptcy context. The administration barely winced as the Senate caved to the banks on this critical issue, risking no political capital to protect one of the few reforms that could have totally transformed the mortgage crisis. As the foreclosure wave continues, and as adjustable-rate mortgages hit reset points that are going to cause havoc for millions of additional families, this failure of political leadership by the administration stands as one of the early warning signs that things were amiss.

The second act is the recent-- equally difficult to understand-- concession to the banks, allowing them not to be required to offer what are called "plain vanilla" mortgages and other products to consumers. These products are simpler, more understandable, less ridden with fees, and less prone to long-term risk than most of what banks try to sell consumers on a regular basis. These are the very products consumers need.

Trillions of dollars of taxpayer infusions-- direct cash, loan guarantees, capital purchases, policies to keep banks' cost of capital at virtually zero-- have kept the banks afloat. It is amazing that the administration didn't leverage these infusions to negotiate these two simple policies that would have made banking more sensible for the middle-class Americans whose tax dollars have bailed out the banks.

The administration's failure on these two policies is symptomatic of its larger failure of vision when it comes to banking reform. The administration has spent more time worried about the musical chairs of regulatory jurisdiction than it has asking fundamental questions about what banks should be doing, what we should expect in return for the vast sums we have invested in the banks, and how discomforting it is that the banks-- in an effort to forestall these very questions-- are already trying to assert that things have reverted to normal. It's worth recalling that the greatest impact of the New Deal was not the money spent on particular programs but, rather, the fundamental restructuring of the banking and securities sector that President Roosevelt imposed over the objections of business leaders.

But on Thursday the House Financial Services Committee isn't taking up anything quite so grand and definitive. Instead they'll start looking at a bill introduced by progressives Peter Welch (D-VT) and Zoe Lofgren (D-CA) that would limit fees credit card companies exact on transactions at retail stores-- "interchange fees." This looks like a battle between the Wall Street lobbyists and the Main Street lobbyists-- Bank of America vs 7-Eleven. Neither is especially looking out for the interests of consumers. Let's hope Welch and Lofgren and their congressional colleagues are. It's important work, although I think the country is getting kind of anxious waiting for them to deal with some of the really big issues that are continuing to drag down the economy-- like propping up the banks that are too big to fail.

Amid all the talk about systemic risk regulators, consumer protection and other fixes to our fractured financial system, there is a troubling silence on what may be the single most important reform: how to rid ourselves of banks that are so big and interconnected that their very existence threatens the world.

Too big to fail is too hard to kill, it seems.

During the credit bust, our leaders embraced the too-big-to-fail policy, reluctantly bailing out large institutions to save the system from collapse, they said. Yet even as the crisis has abated, these policy makers have shown little interest in cutting financial monsters down to size. This is especially disturbing given that some institutions have grown even larger as a result of the mess.

It is perverse, of course, to reward big banks’ mistakes with bailouts financed by beleaguered taxpayers. But the too-big-to-fail doctrine benefits the banks in other ways as well: the implication that an institution will not be allowed to fall gives it significant cost advantages over smaller, perhaps more responsible competitors.