The Next Bubble to Burst: Will It Be Housing Again?

The modern world of bubbles (source; click to enlarge)

by Gaius Publius

I'm following a number of stories at the moment, including the possible further collapse in carbon (oil and gas) prices; the likely and casual ubiquity of election-stealing by both parties (which has interesting implications for the general election); and the next installment in our "Look Ahead" series, a peer into the future of American political life and governance from the conventions into the reign of the next administration.

But this one-off story deserves your attention. I want to put the existence of a new housing bubble on your radar. It certainly exists. Will it burst soon? There's no telling, but it's as big a bubble as the last one. In my locale (one of those illustrated below) the amount of construction is shocking, given the fact that nothing has structurally changed since the 2007-08 crash.

From Zero Hedge, with charts (emphasis in the original):

Housing Bubble 2.0 - Are You Ready For This?

The mind-numbing Case-Shiller regional charts below are presented without too much comment. As MHanson.com's Mark Hanson adds, the visual says it all.

Bottom line:

Q: If 2006/07 was the peak of the largest housing bubble in history with affordability never better vis a’ vis exotic loans; easy availability of credit; unemployment in the 4%’s; the total workforce at record highs; and growing wages, then what do you call “now” with house prices at or above 2006 levels; worse affordability; tighter credit; higher unemployment; a weakening total workforce; and shrinking wages?

A: Whatever you call it, it’s a greater thing than the Bubble 1.0 peak.

... If these key housing markets hit a wall they will take the rest of the nation with them; bubbles and busts don’t happen in “isolation”.

And now those charts:

Price charts from selected housing markets (click to enlarge).

A few comments from the site (my emphasis here):

• The bubblicious regions above all have one thing in common…STEM [the science-technology-engineering-math sector]. As such, if the tech and biotech sectors hit a wall, which some believe has already begun, so will these housing regions.

• If these key housing markets hit a wall they will take the rest of the nation with them; Bubbles and busts don’t happen in “isolation”.

• House prices have retaken Bubble 1.0 levels on the exact same drivers: easy/cheap/deep credit & liquidity that found its way to real estate. The only difference between both era’s [sic] is which cohorts controlled the credit and liquidity. In Bubble 1.0, end-users were in control. In this bubble, “professional”/private investors and foreigners are. But, they both drove demand and prices in the exact same manner. That is, as incremental buyers with easy/cheap/deep credit & liquidity, able to hit whatever the ask price was, and consequently — due to the US comparable sales appraisal process — pushed all house prices to levels far beyond what typical end-user, shelter-buyers can afford. Thus, the persistent, anemic demand.

• Bubble 2.0 has occurred without a corresponding demand surge just like peak Bubble 1.0. As such, it means something other than fundamental, end-user demand and economics is driving prices this time too.

• The end result of Bubble 2.0 will be the same as 1.0; a demand “mix-shift” and price “reset” back towards end-user fundamentals once the speculators finish up, or events force them to the “sidelines”. ...

And:

• Lastly, I am betting 2016 marks the high for house prices, as mortgage rates can’t go meaningfully lower, the unorthodox demand cohort is exhausted, and real affordability to end-user shelter-buyers has rarely been worse. In fact, I believe this is the year house prices go red yy [year-over-year].

The zero interest rate economy (ZIRP; the "P" stands for "policy"), which is so good for bankers since they "borrow" from the Fed for free, is terrible for us little people. (The central banks are also propping up the stock market, by the way, one of the places the CEO class parks their corporate "take.") All of which creates an economy that is, as Zero Hedge says, "bubblicious." The fact that we're in an economy buoyed by serial bubbles is structural, built-in. The economy will be this unstable until we reregulate and aggressively tax those with too much money and no productive place to invest it.

This is not good for the rest of us, not good at all. Pay attention, and if you can, protect yourself. At some point soon, the next housing crash will occur. And when the banks do need bailing out, watch what happens. The public, left and right, won't tolerate more flat gifts to bankers. So the Europeans are experimenting with something quite different:

According to The Economist, the magazine that coined the term "bail-in", a bail-in occurs when the borrower's creditors are forced to bear some of the burden by having a portion of their debt written off. For example, bondholders in Cyprus banks and depositors with more than 100,000 euros in their accounts were forced to write-off a portion of their holdings. This approach eliminates some of the risk for taxpayers by forcing other creditors to share in the pain and suffering.

While both bail-ins and bail-outs are designed to keep the borrowing institution afloat, the two different methods of accomplishing the goal vary greatly. Bail-outs are designed to keep creditors happy and interest rates low, while bail-ins are ideal in situations where bail-outs are politically difficult or impossible, and creditors aren't keen on the idea of a liquidation event. The new approach became especially popular during the European Sovereign Debt crisis.

Otherwise known as asset confiscation, that is, preserving taxpayer money and helping a firm's bondholders not take the whole hit themselves by putting some of the cost of keeping an institution afloat ... on depositors. Wonder how that will make depositors feel as they're feeling the pinch of the next crisis.

Of course, the government could just let the profligate banks fail; but then, where would the next Treasury Secretary come from? It is a puzzlement.

GP
 

Why Are the Largest Corporations Sitting on Trillions in Cash?

As the value of money rises, the value of things goes down, and vice versa (illustration by Constance Heffron, Happy Days, 1951, Allyn and Bacon; source).

by Gaius Publius

Why are the world's largest corporations sitting on trillions in cash? Thom Hartmann's answer is — they know a crash is coming.

The Relationship Between Money and Things

Before we look at Hartman, however, let's consider the relationship between "money" and "things." Money and the things that money buys are, by definition, on opposite sides of a kind of see-saw or teeter-totter. When "things" (goods, commodities, services) become more valuable — when their side of the teeter-totter rises — they cost more, and it takes more "money" (dollars) to buy them. That automatically means the value of money goes down, since it take more of it to buy something that used to cost less.

As a concrete example, if the price of a loaf of bread goes from $1 to $2, two things always happen — bread becomes more valuable (it costs more) and a dollar becomes less valuable (it buys less). This is a literal inverse relationship, unlike a lot of false inverse relationships you hear about (for example, less government = more freedom and vice versa.)

Most of us are used to a world in which money slowly becomes less valuable; in fact, this is the "normal" world most of the time. The cost of goods goes slowly up (we call that "inflation"), and the value of the dollar goes slowly down. We've been in this kind of world, an inflationary world, since the Great Depression ended.

The opposite is a period of "deflation," in which the cost of things goes down (often suddenly and drastically) and the value of money goes correspondingly up (often way way up). In that world, the cost of a loaf of bread falls from $1 to perhaps 50 cents; at the same time, one dollar becomes twice as valuable. Deflationary times are associated with "hard times," the Great Depression, for example, because falling prices are usually associated with times when people just can't afford things at "normal" prices because they're just too poor. If a baker just can't sell bread for $1 per loaf, she'll sell it for whatever folks can afford, and the price will fall.

 When only the rich have money, spending slows and prices collapse.

Now do a thought experiment, and as you do, keep the teeter-totter relationship between money and things in mind. In "good times," would you rather be rich in things or rich in cash? Things (goods), of course, since in inflationary times the value of things keeps going up and the value of money (cash) keeps going down.

So what would you rather hold in "hard times," or if you thought hard times were coming? In "hard times" I want to hold cash and buy only what I need. Why? Because in deflationary times, cash increases in value while the price of things keeps falling. (In fact, in my very small way, I've been mainly "invested" in cash since before 2007 and plan to remain that way. I'm sure many of you are as well — something to remember as you read on. You're not the only ones with that idea.)

One last thought. Consider debt in good times and bad. Most people will tell you, correctly, to hold less cash and more debt in good times, since you borrow a dollar that's worth $1 at the time, then pay it back with a dollar that's worth, say, 95¢. A pretty good deal, right? But debt in bad times is a very bad idea, because the math now works against you. You borrow a dollar that's worth $1 at the time, but you have to pay it back with a dollar that's worth $1.05, or worse, and that's before you add in the interest.

Bottom line: If you think hard times are coming, hold the most cash and the least debt you can. Now on to Hartmann and something he wants to point out.

Thom Hartmann and "The Crash of 2016"

In his terrific book, The Crash of 2016, Thom Hartmann identifies something you've likely heard about but haven't given much thought to. Modern mega-corporations are hoarding cash. Hartmann from Chapter 11 (my emphasis, so you notice how large the numbers are):

If you want to know which way the wind is blowing, keep an eye on the billionaires.

So what are the billionaires telling us just ahead of the Crash of 2016?

Well, in 2012, four years before the Crash of 2016, Moody’s Investors Service noted something peculiar. It noticed American companies are hoarding record amounts of cash.

For example, in 2012 Apple was discovered to be sitting on $137 billion worth of cash. Investors actually sued the company to make it pass some of that wealth down to shareholders.

But what Apple was doing was comparatively minor. Altogether, US companies stashed away $1.45 trillion in cash in 2012, a 10 percent increase from 2011.

They aren’t investing it, they aren’t expanding their businesses with it, they aren’t hiring more workers. They’re just sitting on it. They aren’t even paying taxes on it, since, as Moody’s discovered, 68 percent of all that cash is stashed overseas.

Wall Street is also hoarding enormous amounts of money. Dan Froomkin at the Huffington Post explained in July 2012, “The latest report from the Federal Reserve shows that big banks’ cash reserves peaked in the third quarter of 2011, but are still near their all-time high at just under $1.6 trillion—an astonishing 80 times the $20 billion they held in reserve in 2007.”154

But it’s not just in the United States; it’s all around the world.

The Wall Street Journal wrote on Europe’s banks holding cash at the end of 2012: “A dozen of Europe’s largest banks reported holding a total of $1.43 trillion of cash on deposit at various central banks.”

It adds, “That represents at least the sixth consecutive quarter that the banks have increased their overall central-bank deposits. Since the end of 2010, the banks have boosted the amount they are stockpiling at central banks by 84%.”155

The Institute of International Finance, a Washington-based organization, calculated that companies in the United States, United Kingdom, Eurozone, and Japan were sitting on nearly $8 trillion worth of cash.156

Altogether, the wealthiest people on the planet have as much as $32 trillion stashed away in overseas financial institutions, according to a study by the Tax Justice Center in 2012.

All of this is taking place just as the stock market was reaching historic new levels, and profits in corporate America reached the highest levels as a percent-of-GDP ever recorded. Yet, in early 2013, Money News reported that “a handful of billionaires are quietly dumping their American stocks,” including Warren Buffett, John Paulson, and George Soros. ...

If the economy really is doing so well, then why are the wealthy giving signs of the opposite, quietly leaving markets and just sitting on the sidelines?

The answer is they know what’s coming. They know 2008 was just the precursor, and 2016 will be the real catastrophe.

The billionaires are preparing for a series of economic shocks on the horizon, probably beginning in Europe and spreading across the planet ...

Is a great crash coming in 2016? Predicting the future is almost as hard as predicting the past (just ask a historian), so I don't claim to know if Hartmann is right about the timing. But I do know that a crash is coming, and I'm by far not the only one saying so.

Do the rich know something we don't? They may not notice when torches and pitchforks reach critical mass, but I'll bet they do know about economic crashes ... sometimes. Something to think about.

GP

Tax Day? Is it that time already? Or, a Tax Day tale of (routine) annual horrors

by Ken

Phew!

As I write, the message on my computer screen confirms that my e-fiiled federal tax return has been accepted. New York State has yet to be heard from (aka "Pending"), but I've been through this before, and I'm confident that they'll come around in time. Okay, "confident" may be an overstatement. The day I become truly confident about any aspect of income-tax filing is the day when I no longer have to worry about doing it. When that day comes, I will definitely list this on the "plus" column -- almost certainly at the top of the "plus" column. Nevertheless, I'm fairly sure that NYS will be heard from in the not-too-distant future.

And it's all happening a whole day ahead of the dreaded April 15 deadline.

I take this seriously. Because once upon a time . . . .

I can't speak for the rest of the country, but here in NYC you can take your tax returns to the main post office, on Eighth Avenue at 33rd Street, across from Madison Square Garden, right up to midnight and get your mailing envelopes stamped with the magic date -- and every year you can count on the local TV stations having a crew stationed on Eighth Avenue on Tax Night showing the last-minute filers last-minute-filing.

For more years than I care to remember, I was one of those people. Frankly, I don't care to remember any of them. It's too easy to remember the years when I lived within walking distance of a subway station from which it was a mere four stops to the very corner of Eighth Avenue and 33rd Street and I kept watch on the minutes ticking away on the clock watching for the last possible moment when I could count on getting a train that would get me there before the witching hour.


IT'S NOT THAT MY TAXES ARE THAT COMPLICATED

At this point, now that I no longer have any free-lance income, just straight salary, and pretty much nothing else in the way of complications, my taxes could hardly be simpler. Yes, there have been years past when I could legitimately entertain a measure of terror about whether I would have enough money to cover the eventual tab, if it eventuated that there was one. By now, however, it's hard to imagine that my payroll deductions could be that far out of whack with my tax bill. But the terrors aren't rational.

As a matter of fact, skipping for the moment over weeks and days and hours of mounting terror, I did reach a point this afternoon when the tax software (which I'd bought months ago, imagining a timelier filing process) wanted to know whether I wanted to have NYS calculate the penalty due on the amount I owed or did I want to calculate it myself? If I can attempt to re-create my thoughts of the moment, they went something like this:

Huh?

A panel on the side of the window was telling me that I had a refund of $368 coming from the federal government and a refund of $0 coming from my state. I had to do some clicking around to find out what this penalty the software spoke of was coming from. When I found it, I wished I hadn't. The amount of tax I reportedly owed to the state was something like $1462. If I can attempt to re-create my thoughts of that moment, they went something like this:

HUH???

(I'm not sure whether you can detect the much higher level of terror in this "huh.")

At this point I had to confront the fact that I really didn't know my way around the software, especially since I had already clicked my way through to the NYS worksheet for calculating the penalty I might owe, and so any attempt I made to get the software to just display the form led to a display of this worksheet. Eventually I must have found a way to view the return the software was cooking up, in this case a NYS IT-201. With the detecting genius of a Sherlock Holmes, I probably needed less than 15 minutes to identify a possible point of contention: the form was claiming that the amount I had paid toward my NYC indebtedness was, wait for it, zero!

Which didn't seem likely.

Now, ironically, I had to find my way back to one of the first steps I had taken on finally getting up the courage to open the tax software sometime earlier this afternoon. Oh wait, I guess I haven't mentioned that I was proceeding at this, er, exceedingly cautious, step-by-step pace (including many preliminary steps of avoidance) because I had taken the precaution of taking a PTO day today, sort of my personal Tax Day. And I had intentionally scheduled it for the 14th rather than the 15th just in case I found there was a problem (or problems) I couldn't resolve on a same-day basis. (Don't snicker. It's happened to me.)

As soon as I opened the program, I had to deal with the issue of inputting the information from my W-2, and much to my surprise, I was able to get the software to import it from my employer's website! It's true that the instructions at that point had warned me to make sure that the imported information was correct, and I had tried to, but it somehow hadn't occurred to me to skip to the very last information to see that the last information -- the local tax deducted this year -- wasn't there.

Well, okay, I supposed I could re-import the information. But first I figured I needed to get rid of this dastardly rendering of my true W-2. I wound up exiting the return-in-progress, not only not saving what it was asking me about saving but deleting the whole damned thing. Which meant I got to start over. Which I did, and tense minutes later, sure enough, my identifying information had been accepted and we were once again importing the W-2, or so it claimed. The screen warmed that this could take awhile, and I tried not to panic (it hadn't taken very long the first time).

I think I went to the kitchen in an effort to give these systems some time to communicate without me watching over them. It's possible that I put some coffee on. Eventually, though, I had to come back and see what was happening, and apparently it was nothing. We were still importing. From here the thing gets a little blurry, but the program crashed. And when I restarted it, and once again started the return from scratch (when I tried to open the existing file, it turned out there was nothing in it, which I realized made sense since I had deleted it my own self), and when we got up to the W-2 importing stage, and I had once again entered all the identifying info, it crashed again! And maybe once again after that.

Now I was reentering the return-creating process with the knowledge that the software could crash anytime it felt like it. Great! A little paranoid now, I decided to pursue the option I thought I had noticed to input the W-2 contents myself, which I figured I could do, however tedious the process might be, since I actually did have the hard copy of my W-2 in front of me. Well, it had been in front of me. Now it was -- well, who knew where, exactly? There were still mounds of papers strewn about from my earlier efforts at figuring out whether I had enough medical expenses to qualify for some medical deducting. I had concluded that I didn't, but the papers I'd consulted (and in turn generated) were still strewn about.

Eventually the W-2 resurfaced, and I began entering the information while keeping one eye on the lookout for another software implosion. But no, the machine seemed to be amply entertained by my efforts to input all that stuff. One interesting development developed: When it came to the end of the form (finally!), the screen displayed what I finally figured out was a warning that actually affected me: It informed me that the line on which my "local" tax paid was reported, it had to be identified as "NYC," regardless of how it was identified on the printed W-2. And the way it was identified on the printed W-2, which was presumably the way it had been imported when I was originally able to import the original W-2, was "NYC RES."

Luckily -- I guess I have to chalk it up as lucky -- the warning specified "NYC RES" as one version that was no good. No, it had to be "NYC," nothing more. It probably took me less than five minutes to figure out how to change that -- time that also enabled me to reflect that probably the local-tax info had been imported on that original effort; the information simply hadn't been imported, I now figured, because of the offending "NYC RES" label.

To my now-considerable relief, the process proceeded in more or less orderly fashion from there, and this time as we approached the home stretch of the NYS return, instead of the $1460-odd figure that I was supposed to owe, I was now in a position to claim a refund of . . . $2! And suddenly a seemingly insignificant number that had given me a chuckle earlier took on a new character. The tax software, God bless it, had discovered that, in consequence of the $15,540 worth of rent I had paid as a 12-month resident of NYC, I was entitled to a "NYC enhanced real property tax credit" of . . . $14! Yes, as a result of writing those rent checks every month, I was now getting back a dollar and change (a very small amount of change) for each and every one of those checks!

It had seemed funny at the time, especially given the "Congratulations!" with which the software announced the happy result of all those pages of questions it had prompted me to answer leading up to the happy result. Well, $14 is $14, and I wasn't going to sneer. Now, however, it occurred to me that that $14 was the difference between me getting $2 back and me owing NYS $12. Which may not sound like such a big deal, except that if I'd owed the $12, I would have had to go through the additional nightmare of executing an online payment.

Instead, I wound up having to reenter all my bank information, already entered for the federal refund, for the NYS refund. (Well, $2 is $2.) And then there were a whole bunch of "final" steps I don't remember very well before it came time for the truly final click that constituted filing the return.

And then it was all over.

Except, of course, for seeing the "Last Known Status" for my Federal Return and my New York Return switch from "Pending" to "Accepted." I returned to Life as We Know It, and probably a couple of hours later figured out how to get the software to check the status.

Okay, now I see that there's a button on the bottom of the screen labeled "Check Status." Maybe it was, I don't know, hiding earlier. I just clicked it again, though, and it still shows the Federal Return as "Accepted" and the New York Return as "Pending." Well, the ball is in Albany's court now. I'm done. I think.

I'm free. For tax year 2014 anyways. I've already started experiencing flashes of anxiety about tax year 2015. Hey, it's not as if 2015 is some mysterious future unknown quantity.

I realize I'm just babbling, and you either did your taxes months ago or have tax stuff of your own on your mind. But if you thought you were going to get something more coherent tonight, you were mistaken.


UPDATE: TUESDAY NIGHT, 10:30pm ET

Breaking news: "Great news -- New York has accepted your return!"



The majestic steps of McKim, Mead and White's James A. Farley Post Office on Eighth Avenue between 31st and 33rd Streets -- you can tell it's not Tax Night because (a) it's not night, and (b) there's no throng of late tax filers and the inevitable local camera crews covering the throng of late tax filers. Of course in the era of electronic filing, it may be that the throng is no longer so throngy.

#

Austerity, Rigour... And Why Do Rich People Always Just Get Greedier When They Get Richer?

Market jitters? The American financial industry is pointing to Europe and warning that a collapse of the banking system there could be nigh-- and could be catastrophic for everyone.

Insurance on the debt of several major European banks has now hit historic levels, higher even than those recorded during financial crisis caused by the US financial group's implosion nearly three years ago.

Credit default swaps on the bonds of Royal Bank of Scotland, BNP Paribas, Deutsche Bank and Intesa Sanpaolo, among others, flashed warning signals on Wednesday. Credit default swaps (CDS) on RBS were trading at 343.54 basis points, meaning the annual cost to insure £10m of the state-backed lender's bonds against default is now £343,540.

The cost of insuring RBS bonds is now higher than before the taxpayer was forced to step in and rescue the bank in October 2008, and shows the recent dramatic downturn in sentiment among credit investors towards banks.

"The problem is a shortage of liquidity-- that is what is causing the problems with the banks. It feels exactly as it felt in 2008," said one senior London-based bank executive.

"I think we are heading for a market shock in September or October that will match anything we have ever seen before," said a senior credit banker at a major European bank.

France isn't calling it Austerity, but the proud nation is being dragged into the clutches of the banksters and calling it a "rigour package." Compared to the Austerity measures being proposed in the U.S.-- Obama even floated a trial balloon yesterday that sounded like bringing back indentured servitude-- the French version sounds down right benign.

The measures in the rigour package, dubbed by some the "financial turn of the screw," include:

• An "exceptional contribution" of 3% on taxable earnings for those earning above €500,000 to remain in place until France's deficit had been reduced to 3% of GDP.

• Higher taxes on tobacco and alcohol.

• A modification of capital gains tax on property.

...Among other measures, Nicolas Sarkozy, the French president, is reported to be considering the abandonment of tax-free overtime for workers. This was one of the measures that, under the slogan "work harder to earn more," was a pillar of his election campaign in 2005, but it has cost an estimated €4.5bn in lost revenues. The government is also looking at ending tax breaks for companies.

Having recently abolished the "financial shield," which set a limit on the total amount of tax that the rich were expected to pay, a new tax on the wealthy would avoid accusations that his austerity measures would hit those lower down the income scale in the run-up to next year's elections.

France and Germany are also discussing proposals for a tax on financial transactions-- a measure that is vehemently opposed by Britain.

Not just Britain... Wall Street is going insane at the idea and is spending millions of dollars in lobbying and in direct bribes campaign contributions to it's most dedicated mouthpieces in government. The 25 worst Wall Street shills in the House (this year only):

John Boehner (R-OH)- $986,787
Eric Cantor (R-VA)- $610,250
Chris Murphy (D-CT)- $380,500
Jeb Hensarling (R-TX)- $350,350
Dave Camp (R-MI)- $343,800
Scott Garrett (R-NJ)- $320,185
Ed Royce (R-CA)- $318,004
Kevin McCarthy (R-CA)- $315,200
Spencer Bachus (R-AL)- $309,115
Pat Tiberi (R-OH)- $300,549
Steve Stivers (R-OH)- $282,485
Robert Dold (R-IL)- $272,006
Nan Hayworth (R-NY)- $240,006
Jim Himes (D-CT)- $233,500
Steny Hoyer (D-MD)- $226,670
Randy Neugebauer (R-TX)- $224,133
Steve Israel (D-NY)- $204,000
Carolyn Maloney (D-NY)- $199,750
Debbie Wasserman Schultz (D-FL)- $197,900
Joseph Crowley (D-NY)- $193,750
Shelley Berkley (D-NV)- $189,660
Peter Roskam (R-IL)- $188,700
Denny Rehberg (R-MT)- $187,330
Francisco Canseco (R-TX)- $183,852
Paul Ryan (R-WI)- $181,400

Bolded names are members of the Financial Services Committee, charged with "regulating" the banksters to keep them from ripping off consumers and society at large. Alan Grayson was on that committee when he was in Congress. Wall Street wasn't giving him money then and, now that he's campaigning to get back into Congress they're not donating to him either. I called Alan-- who's just back from a trip to Ghana-- this morning to get his take on all this. He told me he "always found it puzzling that business interests gave lockstep support to Republicans, despite their fondness for auctioning off the law to the highest bidder." He was just warming up:

The Republican Party may be the party of Big Business, but it is also the party of Economic Failure.
 
Let’s take the stock market, that very apt measure of how rich the rich are.  In Tommy McCall’s classic 2008 article Bulls, Bears, Donkeys and Elephants, he pointed out that $10,000 invested in the stock market under Democratic presidents would have grown to $300,671, while $10,000 invested under Republican presidents would have “grown” to $11,733. That’s a 2907% Democratic profit versus a 17% Republican profit. Is that still true? Sure enough, the stock market started to recover less than one month after Barack Obama was sworn in.
 
Since federal spending alone now equals almost a quarter of GNP, is it really good for business to make government small enough to “drown in the bathtub,” as Grover Norquist always demands?
 
And how, exactly, is the banking system supposed to function without regulations? Reserve requirements are regulations. They are the only limits on the banks’ unbridled speculation and gambling with other people’s money. Remove the regulations and a crash will quickly follow. That wouldn’t be good for business.
 
Republican economic mismanagement takes down both the rich and the poor. In other countries, the rich seem to understand that, but not here. Here, the blanket support for Republicans by Big Business and the filthy rich amounts to an economic death wish.
 
There is an old saying: “if you’re so smart, how come you ain’t rich?” I have a different question: when it comes to political self-interest, how can rich people be so dumb?

If we can't count on Congress to protect us-- and we can't-- who can we turn to? That was the whole idea of why Elizabeth Warren came up with the Consumer Financial Protection Bureau-- and why Wall Street fought so hard to cut it off at the knees. Obama has been nearly as friendly to Wall Street as any Republican president and it would be foolish to expect him to change his stripes. Matt Taibbi has done some great reporting in Rolling Stone about one of the few places where consumers can look for redress: New York's crusading Attorney General, Eric Schneiderman. Basically, Wall Street and their political puppets-- from Obama and the GOP to the rest of the states' attorney generals-- have "cooked up a deal that would allow the banks to walk away with just a seriously discounted fine from a generation of fraud that led to millions of people losing their homes." Schneiderman is the odd man out.

The idea behind this federally-guided “settlement” is to concentrate and centralize all the legal exposure accrued by this generation of grotesque banker corruption in one place, put one single price tag on it that everyone can live with, and then stuff the details into a titanium canister before shooting it into deep space.

This is all about protecting the banks from future enforcement actions on both the civil and criminal sides. The plan is to provide year-after-year, repeat-offending banks like Bank of America with cost certainty, so that they know exactly how much they’ll have to pay in fines (trust me, it will end up being a tiny fraction of what they made off the fraudulent practices) and will also get to know for sure that there are no more criminal investigations in the pipeline.  

...But Schneiderman, who earlier this year launched an investigation into the securitization practices of Goldman, Morgan Stanley, Bank of America and other companies, is screwing up this whole arrangement. Until he lies down, the banks don’t have a deal. They need the certainty of having all 50 states and the federal government on board, or else it’s not worth paying anybody off. To quote the immortal Tony Montana, “How do I know you’re the last cop I’m gonna have to grease?” They need all the dirty cops on board, or else the whole enterprise is FUBAR. 

In addition to the global settlement, Schneiderman is also blocking an individual $8.5 billion settlement for Countrywide investors. He has sued to stop that deal, claiming it could “compromise investors’ claims in exchange for a payment representing a fraction of the losses.”

If Schneiderman thinks $8.5 billion is an insufficient, fractional payoff just for defrauded Countrywide investors, then you can imagine how bad a $20 billion settlement for the entire industry would be for the victims.

In that particular Countrywide settlement deal, it looks like Bank of New York Mellon, the New York Fed, Pimco and other players negotiated on behalf of defrauded investors. They told the Times they were happy with the deal, but investors outside the talks told Gretchen they weren’t happy with the settlement.  

Schneiderman apparently listened to those voices instead of the Mellon-Fed-BofA crowd, which infuriated the insiders who struck the actual deal. In a remarkable quote given to the Times, Kathryn Wylde, the Fed board member who ostensibly represents the public, said the following about Schneiderman:

It is of concern to the industry that instead of trying to facilitate resolving these issues, you seem to be throwing a wrench into it. Wall Street is our Main Street-- love ’em or hate ’em. They are important and we have to make sure we are doing everything we can to support them unless they are doing something indefensible.

This, again, is coming not from a Bank of America attorney, but from the person on the Fed board who is supposedly representing the public!

This quote leads one to wonder just what Wylde would consider “indefensible,” given that stealing is pretty much the worst thing that a bank can do-- and these banks just finished the longest and most orgiastic campaign of stealing in the history of money. Is Wylde waiting for Goldman and Citi to blow up a skyscraper? Dump dioxin into an orphanage? It’s really an incredible quote.

Remember this?



She's running for the Senate now, in Massachusetts, against Wall Street's "favorite" senator, Scott Brown. Wall Street and the financial services industry are financing his campaign. Can you help Elizabeth's? Our House candidates worthy of help, like Grayson, are on another page-- this one.

So are we all still here, post-6pm on 5/21? (Any chance of a do-over?)

Although this, er, "story" was a "gimme" for the
cartooning community, thank you, Pat B!

[T]he rules of sovereign democratic government and global finance have mutated beyond recognition. Today when banks need more of their assets purchased by the public purse in order to relieve them of possible losses, the public purse is opened without discussion. What this means is that you and I are NO LONGER simply buying up, as a temporary, emergency measure, mistakes made in the bubble of three years ago. We are there to buy up the results of any greedy speculations made in the last two years. Government purchases and the QE which fund them are no longer part of dealing with any 'crisis' at all. They are now part of how the banks do business.They are the new normal.

This isn't a crisis. This is the new business of profit without risk. It isn't even really a 'bail out'. The new normal is a no risk machine for expropriating public wealth. [Emphasis added.]

-- Golem XIV, in the blogpost "The New Normal"

by Ken

Could someone explain to me how it is that right-wing crackpots never suffer embarrassment for being laugh-out-loud wrong?

I have to admit, it's pretty otherworldly how much attention that crackpot scumbag got with his massively hyped forecast of the end of the world. A lot of people should be ashamed. The thing that gives me pause is why the asshole would have gone so far out on his twiglike limb. Yes, the world is in deeply rotten shape today, but only incrementally more deeply rotten than on May 20, and incrementally less rotten than it will be on May 22. I mean, shouldn't he be hanging from the rafters tomorrow with a sign hung around his severed neck saying, "I AM DUMBER THAN DIRT"?

BLAME IT ON THE DAMN GAYS

My favorite take on the story was that of a colleague who passed along the Raw Story report, "Doomsday leader says gay pride is proof the world will end," with a note saying something like: "In case you thought this wasn't going to be blamed on the gays."

This may not be an appropriate moment, or segue, but seeing as how we're already on the subject of the deeply rotten state of the world, that reminds me that my principal piece of business tonight (and if the world has come to an end after I went ahead and toiled heroically over this post, I will be some kind of pissed) is to make sure that everyone has seen a terrific recent blogpost by Golem XIV (David Malone, author of The Debt Generation) called "The New Normal." It's not that anything he has to say is going to startle, or even be especially unfamliar to, DWT readers, but it's such an earnest and elegant exposition that I can't recommend it highly enough.

I can't do justice to it here, but I can at least give you the crux. First, G posits "two broad narratives of our present situation":

The dominant, official narrative, is that there was a technical crisis of money flow, precipitated by a bolus of bad debts which then caused a collapse of confidence in the value of several large asset classes. What was required was to show that such assets would always retain their ability to find a buyer and thus their value, even if the buyer had to be, in the immediate term, the public purse. The public purse was duly opened to steady nerves and sales, and massive purchases of whatever could not find any other buyer were duly made. The plan was and is that the purchased assets would be sold by our governments, back to the market once other buyers returned.

The dissident narrative is that this was never a technical crisis of money flow - liquidity - but one of insolvency due to the troubled asset classes being, in fact, vastly over valued. The collapse in value and the lack of buyers was not a temporary lack of confidence in an otherwise sound financial system, but a rational shunning of paper assets whose previous value was almost entirely due to the press of gullible buyers who were keen to partake in the buy, flip and buy some more ponzi scheme of speculation.

There was no problem, no fear of "reality intruding," "as long as the paper value was never questioned by all the players." I think maybe we can think of this as an analog of the famous "Emperor's New Clothes" situation. As long as nobody pointed out the emperor's nakedness, he was effectively arrayed in his stunning new wardrobe. Of course in the case of a faked economy, it takes more than some indiscreet kid to bring the thing down -- but not all that much more.

Of course as soon as someone defected from the grand lie, then the rational thing for everyone to do was to defect as quickly as possible. This is what every insider tried to do as quickly as they could and why the collapse was as fast as it was and was led by the banks themselves.

The end game of such a scenario would have been the ruination of those left holding the worthless paper. And if those holding the paper had been you and me then this is what Wall Street and The City of London would have been happy to see happen. But in this case the collapse was so shockingly rapid and in the preceding euphoria of the bubble so much of the paper had been retained by the banks and super-wealthy that this was NOT going to be permitted to happen. Instead actions were taken to ensure that the worthless paper assets were transferred to the public purse. Should they recover their value they would be re-purchased, but if not then they would be left where the loss would fall on people who were more accustomed to being poor and whose prior poverty has often been seen by the wealthy as an indication that they deserved to be poor.

G then describes the monumental effort of rewriting of reality that has been deployed with stunning rapidity and pervasiveness, whereby "the 'debt crisis' is seen as something that is under control," and the bankers who did so much to create the crisis and then precipitate the in-any-case-inevitable crash "are being airbrushed out of the story," and the true evil turns out to be "public expectation of a free lunch for their children at school or a pension for their life's work or a health service paid for through taxes -- these socialist weapons of fiscal destruction."

What we are left with in the official narrative is that our betters have one crisis under control -- the cash flow/liquidity crisis and are now taking equally heroic steps to deal with the recently uncovered, deeper, systemic crisis -- the 'true' crisis - of out-of-control public spending which is responsible for sovereign debt levels that are injurious to the efficient workings of the markets. Markets whose fearless leaders are trying, despite pubic profligacy and obstinate stupidity, to help us out of debt and back on to the true path of prosperity via necessary austerity and more 'realisitic' expectations of what we are worth and what we deserve.

What G is wondering is whether exponents of what he calls "the dissident narrative" "have been swept aside"? "The press are supine collaborators, the rule of law has been bought and whored, and academia is either captured by the dominant ideology and too dimwitted to escape or just too concerned with grovelling for tenure and a city sinecure."

What we have in place now is a system of permanent and institutionalized acceptance that the largest accumulations of wealth and those who own, manage and serve them can never be imperilled or threatened either by democratic rule of law nor even the workings of the markets themselves. Both perils have been removed for the super rich and their banks because it is now established that the purpose of government is to make sure the system and the hierarchy of wealth and power at its peak, remains untouchable and unchangeable.

"Crisis?" G concludes. "What crisis?"

The only crisis for the elite and their banks will be if the next round of QE in America and of ECB bail outs for German and French Banks via Greece, Portugal and Ireland somehow do not happen. If there is a minor miracle and our leaders remember we exist -- THEN there will be a crisis for the banks and the financial elite and some small hope for us.

And this would appear to be, per G, the best-case scenario! Sort of gives you second thoughts about the May 21 doomsday forecast.

#

Our Financial Markets: A Confidence Game

Right now our political system is in a state or rot. There are a variety of reasons, crazy teabaggers, sell out Blue Dogs, a media attracted to shiny objects, these are only some of the culprits. But perhaps the biggest one is the deleterious and really deadly effect of corporate money in our political system.

It is this money that allowed the banksters to buy their way out of real reform or any accountability for taking down our economy. And it is this money that is now being laundered through that foreign currency center once known as the Chamber of Commerce, to attack Progressive Democrats and destroy what remains of our social safety net.

So I thought it was a good time to recommend a book that tells the story of how our economy got here-- from a progressive perspective-- putting us on the trail of real world financial assassins. The Confidence Game, written by Bloomberg News Reporter Christine Richard, is the story of a multi-year effort by hedge fund manager Bill Ackman to warn Americans of the many flaws he found in the $2.5 trillion bond insurance market. This included the fact that their AAA ratings-- with their $40 of debt for every dollar they had in the piggy bank--weren't worth the paper they were printed on, or Jamie Dimon's salary for one minute of an average day destroying our financial system.

All Ackman found for himself was trouble when he started speaking up, as he was investigated by George W. Bush's SEC (wow, proof they actually investigated someone!) and smeared by the Wall Street Journal. This is a high stakes story, and I am not making out Ackman to be a saint, but it is important to know what happened to the market, who knew it was happening, and what happens to those in our democracy who speak out against these modern day robber barons.

The Confidence Game is a great read. I'm still counting on everyone going to see Charles Ferguson's new-- very much related-- film, Inside Job, and between the two, I guarantee you, you'll know more about the financial meltdown than any loud-mouthed brothers-in-law who gets all his information from Fox and who plans to make your Thanksgiving unbearable.

Private Gains/Public Losses: Inside Job-- The Movie

I guess if you just arrived back on earth after hitching a ride on a passing meteorite from Alpha Centauri, you might be unaware that there has been a global financial and economic meltdown taking place-- the cherry on the cake of the right's ascension to power and their anti-regulatory, "greed-is-good" mania. Friday night I went to see the new Charles Ferguson film that puts it all together in a powerfully compelling, stark and ultra-informative documentary. That's the trailer above.

Oscar-nominated Ferguson seamlessly weaves together a narrative that exposes the selfish greed and corruption of Republicans from Reagan to Bush-- without sparing the equally culpable Clinton and his crew of bandits-- while graphically showing the devastation from Iceland to Singapore to Queens. Ferguson, who was brilliant on NPR last week, the reason I accepted the invitation to see the screening:

This film attempts to provide a comprehensive portrayal of an extremely important and timely subject: the worst financial crisis since the Depression, which continues to haunt us via Europe’s debt problems and global financial instability. It was a completely avoidable crisis; indeed for 40 years after the reforms following the Great Depression, the United States did not have a single financial crisis. However, the progressive deregulation of the financial sector since the 1980s gave rise to an increasingly criminal industry, whose “innovations” have produced a succession of financial crises. Each crisis has been worse than the last; and yet, due to the industry’s increasing wealth and power, each crisis has seen few people go to prison. In the case of this crisis, nobody has gone to prison, despite fraud that caused trillions of dollars in losses. I hope that the film, in less than two hours, will enable everyone to understand the fundamental nature and causes of this problem. It is also my hope that, whatever political opinions individual viewers may have, that after seeing this film we can all agree on the importance of restoring honesty and stability to our financial system, and of holding accountable those to destroyed it.

Although France's former Minister of Finance, Christine Lagarde, Trillion Dollar Meltdown author Charles Morris, Eliot Spitzer, and NYU Economics Professor Nouriel Roubini come off as the most astute and penetrating characters in Ferguson's documentary, it is through the interviews with the perpetrators and villains, lured unsuspecting into condemning themselves and their cronies, that one gets the true horror of what has been pulled off against the citizens of this country by the business and political elite. My favorite scumbags-- and, as a firm believer in the death penalty, I heartily disagree with Ferguson that any of these crooks belong in prison-- are Scott Talbot chief lobbyist for the Financial Services Roundtable (Banksters, Inc), Glenn Hubbard, Bush's Chief Economic Advisor and one of the main architects of the great heist, currently disgracing Columbia University as dean of their increasingly untrustworthy and very shady Business School, and the hapless/clueless David McCormick, former Under Secretary for International Affairs at the U.S. Department of Treasury (the guy in the video up top who asks for the filming to be stopped when it finally dawns on him that the movie isn't going to be a toast to the genius of Phil Gramm).

You've probably heard of most of these folks but Ferguson introduces two know are both delightful and previously unknown to the general public: Jonathan Alpert and Kristin Davis. He's a prominent Manhattan psychotherapist to Wall Street executives and to the sex workers they employee. And Kristin (photo above, right)? The former Madam to the investment banker community. Ferguson explores another aspect of the financial meltdown through them, and others: overgrown boys on cocaine trying to prove their dicks are the biggest. They cost the world economy over $20 trillion dollars, made out like bandits, are all still living like kings-- actually better than any king ever did-- and are about to get another huge tax break from their pals the Republicans plus cowardly and corrupt Democrats like John Adler (NJ) and Evan Bayh (IN).



SONY Pictures was kind enough to provide theatergoers with Ferguson's timeline of how deregulation, which Wall Street bribed Congress into providing, led to the development of a toxic Wall Street Culture and the financial collapse:

1930s (post-Great Depression)-1979: Traditional American finance

1933-35: Motivated by financial abuses that contributed to the Great Depression, new laws such as the Glass-Steagall Act and the Securities and Exchange Act place limits on financial risk-taking and require extensive disclosure of financial information

• Bankers/traders earned salaries in line with other professionals; tightly regulated financial sector

1980s: The Reagan Era: laissez-faire and trickle-down economics

• Substantial deregulation, especially the Garn-St. Germain Act which deregulates Savings and Loan companies, leading to the later S&L crisis

• Oliver Stone’s Wall Street immortalized financial sector greed and immorality

• S&L scandal: loose regulations, lax enforcement lead to massive fraud; hundreds of S&Ls fail lax enforcement lead to massive fraud; hundreds of S&Ls fail; $124 billion taxpayer-funded bailout

• Neil Bush approves $100 million of bad loans to business partners through Silverado S&L, which subsequently fails

• 1989: Keating Five: Four senators and CEO Charles Keating accused of improper influence in advocating against investigating Lincoln S&L, which collapses and Keating is convicted of fraud

• 1987-1990: Michael Milken, Ivan Boesky and other Wall Street executives convicted of fraud and insider trading

1990s: Clinton era: increasing revolving door between Washington and Wall Street

• 1999: Clinton administration members with Wall Street backgrounds help pass the Gramm-Leach-Bliley Act, aka the “Citigroup Relief Act,” repealing Glass-Steagall and allowing mergers that create Citigroup

• 1994: A new law gives the Federal Reserve power to regulate the mortgage industry, but Alan Greenspan refuses to enact any regulations, on the grounds that regulation was unnecessary

• 2000: Clinton Administration, particularly Larry Summers, Alan Greenspan and key Congress members including Senator Phil Gramm help enact the Commodity Futures Modernization Act, which bans all regulation of financial derivatives and exempts them from anti-gambling laws

• 2000: Dot-com bubble bursts

• 2000-2002: Eliot Spitzer sues 8 investment banks for conflict of interest and recommending dot-com stocks they thought were junk; reaches settlements totaling $1.4 billion in fines

2000s: George Bush pushes for further deregulation and relaxed enforcement

• 2000-2005: Investigations of Fannie Mae and Freddie Mac reveal massive accounting fraud

• 2002: Arthur Andersen, auditor, convicted of obstruction of justice for shredding Enron documents

• 2003: Worldcom revealed to have inflated assets by $11 billion

• 2000s: new crops of highly complex financial innovations flourish: securitization of mortgages, credit default swaps, synthetic CDOs

• 2000-2007: Fed by the investment banking industry, a massive housing and mortgage credit bubble sweeps the United States; mortgage lending quadruples, housing prices double

• 2004: After intense lobbying by investment banks, the SEC lifts the leverage limits on the investment banking industry, allowing them to borrow more

• 2005: IMF chief economist Raghuram Rajan warns of dangerous incentives and risks in the financial system; Larry Summers dismisses him as a “Luddite”

• 2005-2008: Goldman Sachs, Morgan Stanley, Deutsche Bank and other investment banks begin using credit default swaps to bet against the same mortgage securities that they are selling as extremely safe

• 2006: Hank Paulson, CEO of Goldman Sachs, becomes Treasury Secretary

• 2007: The housing bubble bursts, as the financial sector runs out of people willing to borrow and purchase more housing; home ownership reaches an all-time high, while savings rates are at historic lows

2008: Great Recession begins

• Collapse of Bear Stearns (March) and then Lehman Brothers (September)

• AIG rescued with $85 billion one day after Lehman declares bankruptcy

• Housing prices drop by 32 percent over three-year period

• Record foreclosures

• Unemployment rises from 5% to 10% in one year

• Tens of billions in bailout money go to AIG and Goldman Sachs

• $700 billion emergency bailout for the financial industry

2010s: The Obama era: Business as usual?

• Timothy Geithner becomes Treasury Secretary

• Larry Summers becomes director of the National Economic Council

• President Obama re-appoints Ben Bernanke

• Obama appoints many Wall Street executives to senior regulatory and economic policy positions

No one goes to prison and no one has to give back the ill-gotten gains. Ordinary citizens just have to eat it. And ordinary citizens probably deserve it since they keep reelecting the criminal political class that has made this all possible. Since we're about to go into an election, I thought I'd just mention in passing that there are several politicians up for reelection in November who voted on the Gramm-Leach-Bliley Act that effectively guaranteed the great heist by deregulating Wall Street. In the Senate, which passed it 54-44, every Republican voted YES and every Democrat (other than reactionary Dixiecrat Ernest Hollings of South Carolina) voted NO. Facing the voters in November we find Chuck Grassley (R-IA), and John McCain (R-AZ) on the YES side and Barbara Boxer (D-CA), Russ Feingold (D-WI), Blanche Lincoln (D-AR), Barbara Mikulski (D-MD), Patty Murray (D-WA), Harry Reid (D-NV), Chuck Schumer (D-NY) and Ron Wyden (D-OR), who tried stopping the catastrophic bill from passing. Why so few Republicans left in the Senate? Many of them, like Gramm, left to take get-rich-quick/thank-you jobs with the big banks, lobbyists and Wall Street firms.

It passed the House by far more lopsided numbers, 343-86, 16 Republicans and 86 Democrats (+ Independent then-Rep. Bernie Sanders) voting NO. Among the YES votes were Richard Burr, Jim DeMint and David Vitter, now sleazy and reactionary U.S. Senators seeking reeelction from the Carolinas and Louisiana; Charlie Bass and Steve Chabot (respectively a New Hampshire and an Ohio crook looking for their old jobs back); Roy Blunt and Pat Toomey (uber-corrupt political hacks jonesin' for a promotions to the Senate from Missouri and Pennsylvania); John Boehner, of course who is hoping voters are retarded enough to make him Speaker; Allen Boyd (Blue Dog-FL); Joseph Crowley (an extraordinarily corrupt New York New Dem fast rising in the House Democratic leadership); Nathan Deal and John Kasich (looking for jobs as governors of Georgia and Ohio, where their talents will be appreciated); Dick Armey (currently acting as king of the teabaggers); Rob Portman (whose economic activities have been so destructive to Ohio that he feels he deserves to be the next senator from that freaked out state); and the economic "brains" behind the Republican/Wall Street agenda, Paul Ryan; as well as a slew of the old Wall Street/K Street standbys like David Dreier (R-CA), Ken Calvert (R-CA), Brian Bilbray (R-CA), Steny Hoyer (D-MD), Peter King (R-NY), Steve LaTourette (R-OH), Jerry Lewis (R-CA), Buck McKeon (R-CA), Pete Sessions (R-TX) and Elton Gallegly (R-CA).

Go see the movie. Kenneth Turan summed it up perfectly for the L.A. Times: "It's a powerhouse of a documentary that will leave you both thunderstruck and boiling with rage," as did Roger Ebert (in the Chicago Sun-Times): "A very angry, very carefully argued, brutally clear documentary about how the American financial industry set out deliberately to defraud the ordinary American investor." People who played key roles in the collapse but who refused to appear on camera include Lawrence Summers, Alan Greenspan, Joseph Cassano, Lloyd Blankfein, Robert Rubin, Ben Bernanke, Henry Paulson and Tiny Tim Geithner.

Can You Trust That Slimy Crew Around Obama To REALLY Take On Wall Street?

So many people-- and everywhere in the world-- had so much hope for Barack Obama, who, after all, had sold himself as the candidate of hope, not just here, but everywhere. Sharp observers, though, noted that his first high level appointment, sleazy political hack (and Wall Street insider) Rahm Emanuel as his Chief of Staff, could only result in a quick end to any hopes for change. He followed up with fellow Wall Street shills Lawrence Summers and Tim Geithner. Are they as bad as Republican appointments? Emanuel and Summers certainly are. Geithner's defenders call him a "technocrat" who isn't really corrupt. Thank Heaven for small favors-- even if the results are the same. Obama needs to shed this crap-- and fast-- if he's going to be able to start regaining any kind of political momentum and credibility.

Yesterday he came on all populist-- despite having ridden into the White House on $42,326,380 in campaign contributions (the most of any candidate in history) from the Finance/Insurance/Real Estate sector, which preferred him over McCain ($33,424,521) and Hillary Clinton ($29,787,616). Can we expect Obama and his Wall Street posse to act in the nation's best interests against the banksters when he's consumed with a tough re-election campaign and the money it will cost to run it? The NY Times, I think naively, holds out some promise he'll be listening to more Paul Volcker-- Elizabeth Warren would be even better-- and less Emanuel/Summers/Geithner.

The tougher approach to financial regulation that President Obama outlined on Thursday reflected a changed political climate, the rebound in big banks’ fortunes after their taxpayer bailout and a shift in power within the administration away from those who had been seen as most sympathetic to Wall Street.

In calling for new limits on the size of big banks and their ability to make risky bets, Mr. Obama was throwing a public punch at Wall Street for the third time in a week, underscoring the imperative for him and his party to strike a more populist tone, especially after the Republican victory Tuesday in the Massachusetts Senate race.

In announcing his proposals Thursday at the White House, Mr. Obama said if the financial industry wanted a fight over new restrictions, it was a fight he was ready to have.

I'll keep an open mind. Meanwhile, I'll be working to elect real progressives over reactionaries-- from either party. Obama may be standing in front of a mirror practicing looking and sounding like a populist, Blue America backed candidates like Marcy Winograd, Jennifer Brunner, Doug Tudor and Regina Thomas, to name a few, are populists... without prompting. It's in their DNA. And last night I got a note from the outsider Democratic candidate in North Carolina, Secretary of State Elaine Marshall, who's running against the hand-picked good old boy DSCC choice. Marshall's ideas for financial reform include ideas Obama would do well to take a look out from an outside the bubble perspective.

“As Secretary of State in North Carolina, one of my duties is overseeing investment securities in the state. We are responsible for protecting investors by investigating people who offer securities and the securities themselves. Unfortunately, in recent years, we have been busier than I would like to be.

“The uptick in the reports of fraud and scams corresponds with the deregulation of the financial industry, beginning in the late 1990s. While many of these problems have come from Madoff‐style Ponzi schemes orchestrated by scam artists, others have come from ostensibly reputable Wall Street firms misleading investors and misrepresenting products. In the past year, we have had to reach settlements with large national banks to recover $340 million for North Carolina consumers.

“The reckless behavior of these firms is indicative of the atmosphere that created the current financial crisis. The Wall Street bankers emphasized short‐term profits with little regard for the financial wellbeing of their investors and less regard for the truth. Unfortunately, after a year of multi‐billion dollar bailouts nationally and crackdowns locally, those bankers are still playing by the same rules.

“After receiving bailout funds, most Wall Street banks invested them for quick profits to pay off the debt instead of lending to businesses to help the overall economy. Now, Wall Streeters are patting themselves on the back with record bonuses once again.

“In this environment, Congress should be clamoring to enact common sense regulations that protect consumers and prevent the risky lending that brought the country to brink of economic collapse. However, the same forces that put so much energy into derailing healthcare reform are taking aim at financial reform. But now, it’s the financial lobby instead of the insurance lobby.

“It’s time for Washington to get some backbone and stand up for consumers, not powerful financial interests.

“First, Congress needs to protect consumers with a Consumer Financial Protection Agency. Currently, banks and financial institutions set the rules and parameters for financial products, often leaving buyers at the mercy of fine print and legal loopholes that benefit the companies. The new agency should add simplicity and transparency to financial transactions because consumers deserve to know the risks of purchasing a product.

“Second, we need to recoup the money we gave banks to keep them afloat and discourage them from taking such risks again. A tax on the mega‐banks would serve as a fee to cover their implicit designation of “too big to fail.” Revenue from the fee should go toward paying down the deficit, much of which has been accumulated because to the current financial situation.

“Which brings us to the third point of reform: No bank should be “too big to fail.” The designation gives the institutions a government safety net that, over time, may well encourage risky behavior. Re‐enacting the consumer protections that were stripped away with the repeal of the Depression Era Glass‐Steagall Act in 1999 would be a step in the right direction. The Act separated commercial and investment banks and insurance companies, and its repeal has been cited as one of the causes of current financial crisis.

“The financial industry will resist these and any other reforms with expensive ad campaigns and scare tactics. Congress needs show some leadership and do what’s best for the country not what’s best for the banks. They need to make my job a little easier by preventing frauds and scams through common sense regulations instead of leaving messes for my office to clean up.”

This morning Russ Feingold explained why he's voting against reconfirmation for Ben Bernanke as chairman of the Federal Reserve, something more and more senators are agreeing with:

“A chief responsibility of the Chairman of the Federal Reserve is to ensure a sound financial system. Under the watch of Ben Bernanke, the Federal Reserve permitted grossly irresponsible financial activities that led to the worst financial crisis since the Great Depression. Under Chairman Bernanke’s watch predatory mortgage lending flourished, and ‘too big to fail’ financial giants were permitted to engage in activities that put our nation’s economy at risk. And as it responds to the crisis it helped to usher in, the Federal Reserve under Chairman Bernanke’s leadership continues to resist appropriate efforts to review that response, how taxpayers’ money was being used, and whether it acted appropriately. When the full Senate considers his nomination, I will vote against another term for Chairman Bernanke.”

Sorry to be late with the latest panic report -- The Doom of Debt -- but it's never too early or late to start panicking!

"The Post could not be bothered to write about the housing bubble as the danger was mounting, only giving attention to the likes of Alan Greenspan and Ben Bernanke, who told us everything was fine, or even better, presenting readers with the assessment of David Lereah, the chief economist of the National Realtors Association and the author of the 2006 bestseller, Why the Real Estate Boom Will Not Bust and How You Can Profit From It.

"Now that the economy has collapsed due to the incompetence of the people whom the Post deems experts, the Post is going back to those exact same experts and telling readers that we have to cut Social Security and Medicare."

-- Dean Baker, in "The Washington Post Is Panicked
Again!!!!!!," on his Beat the Press blog yesterday

by Ken

I realize that my tardiness with this panic report may have cost some of you a full day of good, honest panicking. I mean, who doesn't like to get in on the ground floor of a good, spine-tingling panic? Certainly the Washington Post doesn't intend to be out-panicked. Here's Dean Baker's report from yesterday on his Beat the Press blog:

The Washington Post Is Panicked, Again!!!!!!

The Washington Post is widely known for giving shrill warnings about the deficit danger, but this one is really over the top. It is literally titled: "the coming debt panic." The piece tells readers of the urgency of reining in the debt, telling readers that: "failing to do so will lower the national standard of living."

Sorry folks, this is not true. To push its deficit reduction position, the Post is doing what folks in Washington call "dissembling." They have another word for it everywhere else. Standard economic models do show that deficits can slow economic growth by crowding out investment, they do not show that this impact will be large enough to actually lead to declining standards of living, or at least not any time soon.

The editorial also has the gall to emphasize the problem by telling readers: "consider: In the space of a single fiscal year, 2009, the debt soared from 41 percent of the gross domestic product to 53 percent." This should have readers have everywhere setting their newspapers and computers on fire.

Yes, the debt rose from 41 percent of GDP to 53 percent, but the reason was not profligate spending by Congress or even irresponsible tax cuts. The reason for the surge in the debt was the economic crisis brought about by the collapse of the housing bubble.

The Post could not be bothered to write about the housing bubble as the danger was mounting, only giving attention to the likes of Alan Greenspan and Ben Bernanke, who told us everything was fine, or even better, presenting readers with the assessment of David Lereah, the chief economist of the National Realtors Association and the author of the 2006 bestseller, Why the Real Estate Boom Will Not Bust and How You Can Profit From It.

Now that the economy has collapsed due to the incompetence of the people whom the Post deems experts, the Post is going back to those exact same experts and telling readers that we have to cut Social Security and Medicare.

I'd write more, but it's difficult on a burning computer.

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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.”

The Far Right Finds A Useful Idiot To Go After Barney Frank For Their TV Cameras

There was something visceral in me that just positively grated when I saw that the little monkey the GOP got to regurgitate its anti-Barney Frank talking points at Harvard the other night was wearing a yarmulke. Back when I was in college, it was still close enough to the far right's attempted extermination campaign against Jews so that you could hardly expect to see a Jew rise up and attack a progressive on behalf of an extreme right wing faction or party. The extreme right has been mounting a slanderous and coordinated attack on the most effective Democrat in Congress-- and Joel Pollak sold himself to their cause.

As Media Matters demonstrated yesterday Republican Party spokesmen like Bill O'Reilly, Glenn Beck, Joe Scarborough, Greta van Susteren, Brian Kilmeade and Rush Limbaugh are working diligently to create a false impression that Barney was unwilling or unable to help in the little monkey's sincere quest for knowledge. Faux News' extensive coverage, of course, leaves out the entire context of the event: Barney thoroughly explaining the roots causes of the financial meltdown-- financial institutions which securitized mortgages without maintaining a financial stake, rating companies which gave high ratings to toxic assets, the Bush Regime's shady decision to require Fannie and Freddie to increase purchase of securitized loans of less qualified (i.e. subprime borrowers), companies like AIG which sold credit default swaps to insure risky assets without maintaining even close to enough capital to back them up, widespread speculation in credit default swaps, etc.

Faux was there but not for that. They were there to film the trained monkey ask his question, a de facto accusation disguised as a question, about Barney being the cause of the failure of Freddie and Fannie to sufficiently regulate, as if the Bush Regime was taking their walking order from Barney Frank. Instead, the record is really clear that from 1995 until the Democrats took over the House in January of 2007, Republicans blocked efforts to regulate anything and everything to do with Big Business, and particularly banksters, insurance, subprime mortgages as well as Fannie and Freddie. And somehow Faux News forgot to mention in their hysterical coverage that the only real legislation to regulate Fannie or subprime mortgages came when he became Chairman of the Financial Services Committee and the GOP moved into obstructionist mode, doing their best worst as a party to prevent sane regulatory policies from being enacted.

The Republican Party talking points on Hate Talk Radio and cable TV are that it was Fannie and Freddie-- and not the Wall Street banksters-- which were the primary culprits in the crisis. Insofar as Freddie and Fan were guilty, it was in carrying out orders from the boss-- the Bush Regime-- and that came after Wall Street had gone off on its catastrophic subprime binge. The GOP wants voters to forget the venal banksters, forget Wall Street, forget their own ideological fealty to deregulation, forget that they ever called the shots in Washington or were ever responsible for anything. And what they most fear is that Barney will be the intellectual engine behind passing much-needed reforms for Wall Street that the Republicans blocked while they were in power, and which they continue to oppose today. For the right, this is not an abstract argument-- the survival of their worldview-- and of their millions of dollars in payoffs from the finance/insurance real estate sector--is at stake.

Now, back to monkey boy for a moment. Since he seems so determined to disgrace Jews with his willingness to shill for the far right, maybe he should take his cues from a well know group related to the Republican Party. Another young Jewish man, an Australian, decided to join up and apparently had less luck than Mr. Pollak. Watch: