Taibbi: Why Wall Street Isn't In Jail - Video Interview

This strikes to the heart of what I have called the credibility trap.

The US government cannot effectively deal with the financial crisis and the required credible reforms because in fixing the problems they would necessarily expose the underlying fraud, and endanger the very powerful status quo that funds them and their political campaigns.

This is more difficult to manage than a liquidity trap because the very means of remedy have been co-opted. The doctors caused the illness, and cannot pursue a cure without admitting their malpractice, which may not have been done in simple error but with complicity.

So this malaise and period of selective recovery will continue until there is a another, more destructive crisis that finally clears away the fog of corruption.  Or there is some exogenous event to distract the people to some other problem, to change their focus. 'Never waste a crisis' as they say in the Washington Beltway.

From Japan: An Interesting Comment On US Economic Planning, the Dollar, and Peak Cheap Oil

I shared a copy of this video with a friend in Japan earlier today.

Prof. Jeffrey Sachs of Columbia University on the Obama Budget

I received his reply, and it was much more interesting and insightful than I had hoped it would be.  Certainly a perspective that I have heard in none of the US based commentary today, a much longer term and more strategic view. 

I am sure there are plenty of problems which Japan faces that we could discuss.  It has an aging population, very low birth rates, heavy dependence on imports, and a weak military capability.  Its ability to attract and successfully assimilate immigrants is a challenge.  Every country has problems.

I am not quite sure I know the answers about peak cheap oil. But what I think I know is that the challenge to the US is an inability or an unwillingness to think and execute strategically, ie. long term, in non-military matters.  I believe this is a result of its system which is heavily oriented towards short term economic incentives, regional military conflicts, and financial speculation. 

The idea that you would allow what are essentially short term financial speculators to make important public policy decisions with far-reaching, long term consequences seems unusual or even lunatic in most parts of the world, and is certainly not a trend in historically successful organizations.

Within the metrics of energy and infrastructure, the US government is playing checkers in a game of Go.   Its greatest leverage now appears to be an ability to kick over the global economic playing table in an act of self-destruction.  And that threat is wearing thin.


A Japanese perspective on the US budget:

"Unfortunately, the risk of the whole ponzi scheme crashing sooner rather than later is going way up, rapidly.

They want the dollar to go down by 40%, but I think they are going to lose control, and they might wind up with a 90% panic drop in a few months.

As I said, Japan, around 1995, went into a full peak cheap oil panic. A lot of the government borrowing went to what is characterized as "building bridges to nowhere", but I would characterize it as building some bridges to nowhere, building some airports in nowhere, and fixing the entire rail and road infrastructure of the country.

All the bridges and tunnels have been steel plated reinforced, all the bridges are in perfect repair, and the Shinkansen system will next month be extended all the way from Aomori to Kagoshima.

In other words, I think they knew this 15 years ago and did everything that requires a lot of energy, such as steel, asphalt, cement, and completely the public transit infrastructure. The per capital floor space in Tokyo was doubled.

So, if we really do have a decade of serious energy problems coming, Japan has become about as energy efficient as it can be, with further improvements coming as appliances are replaced, etc.

The US has done nearly nothing, although I did note that the gasoline use declined by 7% in one year. There really is a lot of squandering going on. Now, however, the US needs to completely reconstruct its infrastructure, and it doesn't have the money or energy to do it.

This is why I have thought for more than a decade that the trigger for a really nasty collapse of the dollar would be peak cheap oil.

Do they realize that if the dollar drops by half that oil becomes $200 a barrel? Gasoline would be over $5, and the country would be paralyzed. If the dollar drops more than that, the existing infrastructure would become nearly useless and worthless.

I am afraid that the US has already passed the point of no return.  Had the cheap oil continued, the ponzi could have continued for a good while longer.

I think the realization that the cheap oil is gone is the primary motivation for the smash-and-grab behavior we are seeing in the US."

Perhaps, and it might also be the rationale for the increased military presence surrounding the largest known cheap oil reserves in the world.

Gold Daily and Silver Weekly Charts

As suggested it would, silver led gold higher today. The tension in the physical market is evident in soaring lease rates. At some point silver is going to break and run higher, but it may take some patience. But when it runs it could turn out to be a Nantucket sleigh ride.

As a reminder this is option expiration week for US equities, so there may be some gaming in the mining stocks that are favorites amongst the punters.

Blythe Masters and the JP Morgan Silver Shorts --- Club Américain ReMix



In the Comex pits no one can hear you screaming...

America Trapped in a Massive Coverup of Control Fraud and Corruption

I think most readers with an economics background would be familiar with a liquidity trap, which is a situation where monetary policy is unable to stimulate an economy suffering a non-cyclical credit contraction, either through lowering interest rates or increasing the money supply because expectations of adverse events (e.g., exogenous deflationary factors, insufficient aggregate demand, or civil or international war) make persons with liquid assets unwilling to invest.

America is caught in a confidence or credibility trap, in which the changes, investigations, and reforms necessary to restore trust to an economy or market are rendered unlikely because doing so would expose a pervasive corruption that the principals fear would destroy the careers of politicians and business people who may have permitted and even appeared to facilitate the control fraud that caused the financial crisis in the first place. Personal risk trumps public stewardship.

The fraudulent activity is covered up and therefore continues or at the very least appears to continue, crowding out most productive business investment and activity which cannot possibly hope to compete with the highly profitable fraudulent activity ad asset bubbles under such opaque and uncertain circumstances.  Informed market participants are unwilling to invest their liquid assets in a system which they suspect is riddled with accounting fraud, insider trading, and regulatory weaknesses, except of course in a few situations and somewhat ironically in some existing frauds, such as a bubble in equity valuations for example, which they think they understand.

The American government is indeed acting as if it is involved in a massive coverup of a control fraud and corruption that could perhaps be the worst in its history.  I think many people who are looking at this know in their hearts that all is not well, that there is something not quite right in the current situation.  How else can we explain such massive and widespread financial fraud, with so few meaningful indictments, or even ongoing investigations with credible disclosures?  And the worst perpetrators appear to be dictating the remedies and reforms to the system for this government sponsored recovery.

Hank, Tim, and Ben alluded to the consequences of the discovery and uncontrolled disclosure of this fraud, and it frightened the Congress so badly that they immediately gave up and signed over 700 billion dollars, and many billions more, to facilitate the coverup of this under the guise of recovery and stabilization.  I would like to imagine that those in charge are attempting to prevent a panic while they put out the fires, but I see little serious remedies designed to save the public, much less than to perpetuate the firetrap.  And so the corruption continues to smolder and fester, and thereby debilitate the nation.

More than an American scandal, this fraud reaches deep into the halls of power in Europe, some of whose national governments are already failing. What had been the Keating Five is now the Global Finance 500.

People say they understand this, but they really do not understand the implications of it. They intellectualize and theorize around it, try to deal with it by smashing it down into something they can get their mind around and accept. They may even try to turn it to their short term personal financial advantage. But they are not dealing with it and certainly not facing up to it.

The US banking system controls the issue of the reserve currency of the world, which impacts the price of  virtually everything that is bought and sold.

And as you might expect there are many whose vested interest is to distract and to change the subject away from it. There is a great deal of money to be made by serving the desire to turn people's attention away from the problem to find someone else to blame, some other problem to focus upon, and some new victim class to absorb the public anger. It is an old story, often repeated in tragedy.

Thirteen Ways to Hide the Truth

But unfortunately, confronting the truth and fixing the situation is key to any sort of sustainable recovery. And this is the trap of crony capitalism and control fraud, when it has nearly exhausted its victims, and is having difficulty finding new ones to maintain its growth and facade.

Until that time there will be a procession of scapegoats, defaults, bailouts, and property seizures, both implicit and explicit, and a growing toll of innocent victims and systemic destruction, ending finally in the collapse of the US national currency and international trade.  

If it had not been that the US is so large, and for the time being controls the bulk of the world's reserve currency, it is likely this would have already come to some conclusion before spreading so widely and pervasively.  But the situation remains highly unstable and threatening, despite assurances to the contrary.

William K. Black is telling us something very important, as Harry Markopolos had been trying to tell some simple but important things to the investors in Bernie Madoff's investment scheme.  The Madoff investors preferred to vilify and ignore him.  It appears that the same thing is happening to William Black.  And the final outcomes may be similar.

What can one person do besides to spread the word, and demand the truth in their own place and their own way?  Support those who stand and tell the truth, sometimes at great cost.  Insulate and remove yourself from the fraud as best you can to preserve your wealth and your integrity. 

Above all resist the disinformation, propaganda, and distractions,  and all the insidious rationalization and convenient skepticism to complicit apathy, making it clear that you will be neither a willing victim nor a silent bystander to the intoxicant of blame and hatred, and the victimization of others designed to turn the people on one another, be they Gypsy, Muslim, Jew or Christian, black, white, Asian, Hispanic, disabled, old, poor, ill or weak, or any other variety of outsider and convenient target. 

For once the madness starts, it can never be controlled, and will eventually come for all, and consume all.

The Great American Bank Robbery
Video - Lecture
By William K. Black

1. Why do we have repeated, intensifying economic crises?
2. What can white collar criminology add to our understanding of what's going wrong?

Note: The William K. Black video was first served at this Cafe in August of 2009 in a post titled The Great American Bank Robbery. It was not so widely received at that time as it seems to be now. I view this as a promising development. The events of the past few years are opening people's minds to the possibility that things are not as they appear, and that the financial crisis and reform did not happen for reasons which they had not yet seriously considered.

Is JPM Covering Up a Naked Silver Short Held By China As a Claim Against the Yanks?

I freely admit that I have no inside knowledge of what is happening behind the scenes in the metals markets. But I do have a sense that things just do not seem to make sense, and the facts do not appear to fit the situation without some stretching.  

And this is one of those cases where my curiosity gets piqued. And so this seemed to be of interest to me as it might be to you.

While looking for information about the recent CFTC proposal on position limits I came across Harvey Organ's most recent report on things affecting the metals markets. As you may recall the CFTC took a 4-1 vote to send the proposal forward for market comments, with Rep Scott D. O'Malia casting the sole dissenting vote. I was specifically looking for Bart Chilton's statement on the vote which Harvey references, which is how google led me to Harvery's commentary here:

"I was intrigued with O'Malia's no vote. He seems to be wrapped up in the massive swaps by the banks and he does not know how to regulate these. He is probably scared to death if JPMorgan has to open their swap books and see the trades that I have highlighted to you to you on many occasions.

It is has been my contention all along that the real short position on silver is not JPMorgan or HSBC but mainland China. The USA needed a hoard of silver supply to compliment the banking gold supply to keep the suppression scheme alive.

China had about 300 million oz of silver inherited with the overtake of China in 1949. The gold was air-freighted to Taiwin (69 tonnes) but the silver remained in Shanghai and Beijing. In 1990 the usa had 2 billion oz of above ground silver and by 2003 their supply went to zero. They needed the Chinese supply.

Here was their supposed deal: in or around the year 2000 and events leading up to now:

1. USA gives most favoured nation treatment to China.

2. China lends silver in a swap position. China gets dollars as collateral and USA gets silver.

3. China can get their silver back at any time say past 3 or 4 years.

4. China loves the deal as they pick up gold on the cheap.

5. It is now 2010 and China want its silver back but the usa state that the silver is gone. They can keep the usa dollars in collateral.

6. China refuses and is angry. They now massively short on the comex knowing that they will not supply the metal. It is up to the bankers.

7. They [China or the Banks? - Jess] use conduits on the buy side and take delivery.

This is what O'Malia is frightened of when the CFTC sees the swap book on Morgan."

The point that both Harvey and Ted Butler have made is that China is behind the big short in silver being held by JPM and HSBC (Hong Kong and Shanghai Banking Corporation), but if pushed for delivery will throw its unsatisfied metal claim with the US on the table and will say, 'Get it from them.'

This does seem a little convoluted to me, and the first time I heard Ted mention China as principal behind the big silver short I thought it was ludicrous. Harvey Organ's explanation makes it at least plausible.

But I do think there is an element of unstated truth in this situation somewhere, and that there are serious scandals buried in the naked silver short position and the gold markets that will eventually see the light of day.

Those who can look at the structure of the silver market positions and see nothing suspicious, if not out of whack, are either talking their book or enjoying a pinch of jimson weed between cheek and gum.

Is China black-mailing the US with evidence of market manipulation in gold and silver? It sounds like the plot of some novel, but stranger things have happened when government goes into partnership with finance.

My personal bias is to stick with the simplest explanations unless more data indicates otherwise. A short selling operation at JPM gone awry, combined with significant silver shorts they inherited from Bear Stearns, has taken the bank into the position of being unable to deliver what they has already been sold.  This is complicated by the 'wink and a nod' that was likely given to the banks by a Treasury and Fed eager to keep the fat canary in the monetary coal mine from singing in the precious metals markets.

Given the current state of the US banking industry, the regulators are afraid of what a default on the Comex by the poster child of the Wall Street Banks recovery would do to investor confidence. So they are trying to kick the can down the road.  Almost seems to be a reflex reaction in Washington these days.

The more complex scenario put forward by Harvey and Ted would certainly be a case of the Chinese hanging the capitalists with the same rope which the capitalists sold to them. But I would look for a simpler solution, with an underpinning of well intentioned perception management gone bad with the taint of corruption and cover up.

As a rule of thumb, it's never the act itself, but always the subsequent cover-ups that blossom into a gut-wrenching, career-destroying scandal.

More testimony from Secretary Geithner after this message...

I remember vividly how the testimony in the Clarence Thomas-Anita Hill Supreme Court nomination hearings riveted the world's television audiences each evening. The Nixon Watergate hearings were also high drama indeed, over a much longer period of time, keeping the US locked into what Gerald Ford called a 'national agony.'

Although I was far too young to watch and understand them, I even remember the aftermath of the McCarthy Army hearings, the Red Scare, and Roy Cohn, dipping back further into history of tawdry political affairs. 

Wait until Ron Paul opens for business as the Chairman of the House Finance Service Committee and starts grilling Timmy and Ben about TARP and the banking bailouts, among other things.

There seems to be plenty of smoke coming out of the cracks in the Fed's stonewalling so far.  Likely there is a fire in there somewhere.  And don't forget there are several highly experienced legal firms with discovery orders and lawsuits in hand circling the building, looking for a way in.

This year could be interesting, maybe even 'pass-the-popcorn-Gracie' interesting.

Greed Is Not Good

With regards to the global financial crisis, imposing austerity is not the answer. That is like starving the slaves to improve their condition by making the plantation more profitable.   Looting the 'great house' and the barns to feed the slaves, at least temporarily, is not the answer either. The problem is obviously in the system itself.

But either expedient solution suits the external moneyed interests promoting the system who seek only to plunder and drain the assets and labor of others who are all their common prey, whether they feel their kinship or not. An unjust and unsustainable system tarnishes all participants and leaves them vulnerable to exploitation and decay.

It is the root causes of the debt and the imbalances in the system that must be addressed to make any reform sustainable. And this obviously includes addressing abuses such as the promotion of a global trade regime that is inherently unjust and imbalanced to the favor of the oligarchs of whatever political wrappings around the world who hold the greater profit to themselves and leave their people relatively impoverished and exploited.  And it also includes the waging of unfunded wars to protect and promote privileged commercial interests, and a political funding system that is little more than soft graft and an open invitation to corruption by special interests.

It begins with a debilitating system of taxation by the moneyed interests on every commercial transaction in the form of fees and commissions, and the abuse of a money system that is little more than a fraud perpetrated by private interests for the benefit of a few at the expense of the many. If you wish a simple measure of this, then look to the median wage.

Greed is not good.  Greed is a disease, an aberration of simple honest ambition and necessary provision taken to excess.  This simple distinction may be lost on a people no longer able to distinguish between virtue and sin, honor and expediency, appetite and gluttony, the means and the ends.  Every great religion, every school of philosophy has cautioned throughout history on the perils of unbridled and unregulated greed.  

And yet this generation would make a god of it, although they may not understand, or care, what it is that they are doing, and whom it is they serve. And yet they will be held to account for their willfulness, foolishness, and casual disregard for others.

Greed, often in company with hubris and fear, is a handmaiden of the corrupting influence of power and triumph of the will. Greed is contagious, and attacks the very contentment of society at its heart, turning it towards oligarchy and oppression.

"Greed is a bottomless pit which exhausts the person in an endless effort to satisfy the need without ever reaching satisfaction." Erich Fromm

Any system that promotes greed, gluttony, and insatiability as its highest goods and fundamental ideals is a cult of perversion and addiction on a scale with ancient Rome, an imbalanced insult to the natural law, with a fatal attraction to overreach, failure and self-destruction. What the US has today is not market capitalism that rewards the merits and work of individuals, but rather is the product of dishonest and disordered minds, a system of fraud and plunder by privileged oligarchs masquerading as fair and honest markets of legitimate valuation and price discovery.

"Because the free market system is so weak politically, the forms of capitalism that are experienced in many countries are very far from the ideal. They are a corrupted version, in which powerful interests prevent competition from playing its natural, healthy role." Raghuram G. Rajan

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.

Financial Interests Dictate Sovereign Policy
By Michael Hudson
December 18, 2010

"...The economic problem is not caused by sovereign debt but by bad bank loans, deceptive financial practice and neoliberal bank deregulation. Iceland’s Viking raiders, Ireland’s Anglo-Irish bank and other foreign banks are trying to avoid taking losses on financial claims that are largely fictitious, inasmuch as they exceed the ability of indebted economies to pay. The ‘crisis’ can be solved by making the banks write down their debt claims to realistic ‘junk’ valuations. There is no need to wreck economies by subjecting them to financial asset-stripping.

In such cases there’s a basic principle at work: Debts that can’t be paid, won’t be. The question is, just how won’t they be paid? As matters stand, countries are being told to subject themselves to massive foreclosure – not only a forfeiture of homes, but of national policy.

In this respect the sovereign crisis is a crisis of sovereignty itself: Who shall be in charge of the economy, its tax philosophy and public spending: elected officials acting in the public interest, or an intrusive financial oligarchy? The EU was wrong to tell governments to pay for following its advice – and pressure – to trust financial crooks and deregulate bank oversight. The European Central Bank should reimburse victimized governments for the bailouts that have been paid. This reimbursement can be done by levying a progressive tax policy and creating a central bank to help finance governments.

The proper aim of a national economy is to promote capital formation and rising living standards for the population as a whole. not a narrowing financial class at the top of the pyramid. So I see two major policies to lead the way out of this mess:

First, shift taxes back onto land and resource rent, and onto financial and capital gains. This will prevent another real estate bubble from being inflated by debt leveraging. By holding down housing prices, it will save labor from having to pay an equivalent amount in income tax. Low real estate taxes (under 1% until just recently) have not saved homeowners money in Latvia. Low property taxes merely have left more rental income to be pledged to banks, to capitalize into large mortgage loans.

Second, de-privatize basic utilities and natural monopolies to save Europe from rentiers turning it into a tollbooth economy. Europe needs a central bank that can do what central banks are supposed to do: create money to finance government deficits. But the European Central Bank and article 123 of the European Constitution as amended by the Lisbon Treaty prevents the central bank from lending to governments. This forces governments to levy taxes to pay interest to banks – for creating electronic credit that a real central bank could just as well create on its own computer keyboards.

Government banking is not necessarily inflationary. It finances what is necessary for economies to grow: investment in infrastructure and capital formation to raise productivity and minimize the cost of doing business.

What turns out to be inflationary is commercial bank lending. It inflates asset prices – unproductively. Banks lend mainly against real estate and other assets already in place, and stocks and bonds already issued. This is unproductive credit, not real wealth creation. The only way to keep this unproductive debt overhead solvent is to inflate asset prices more – by untaxing assets to leave more revenue to pay bankers on exponentially growing debts.

It doesn’t have to be this way. The recent 30 years of financial polarization is reversible. The alternative is to succumb to neoliberal austerity."

I think that most people know what needs to be done in their conscience, but their hearts have become so hardened over the past twenty years that the message will be ignored until after they undergo a period of suffering on the scale of the worst of the twentieth century. May God have mercy on us all.

Unless the Lord builds the house, the builders labor in vain.
Unless the Lord watches over the city, the guards stand watch in vain.
In vain you rise early and stay up late,
toiling for food to eat—
for he grants sleep only to those he loves.

Psalm 127

The Problem of Unresolved Debt in the US Financial System

Michael David White has painted some dire pictures of the US housing market, but this one is shocking in its implications.



Chart fromA Blistering Ride Through Hell by Michael David White.

I enjoyed the synopsis of this chart that was done by Automatic Earth in Is It Time to Storm the Bastille Again:

"That is, what Americans' homes are worth, their equity, decreased by $7 trillion -from $20 trillion to $13 trillion, from spring 2006 to spring 2010. In the same period, mortgage debt, what Americans owe on their homes, went down by only $270 billion. Yes, that's right: US homeowners lost more, by a factor of 26, than they "gained" through clearing mortgage debt. Thus, if we estimate that there are 75 million homeowners in America, they all, each and every one of them, lost $93,333."

Nine out of ten Americans will notice that there is a significant gap that must be closed here. What makes it even more chilling is that the gap is continuing to widen as home prices continue to correct to the mean.

This debt must be resolved. There are two major ways to do it: repayment and default.

Repayment is probably a fantasy, if not beating a dead horse. The homeowners do not have the money with which to pay the loans given the current state of employment and wage stagnation, and the mortgages are for the most part on houses whose value is significantly under water compared to the debt, as in ' just mail in the keys.'

Straight up default, writing off the debt even through foreclosure, is also probably out of the question, because it would essentially vaporize the balance sheet of the US banking system which is also insolvent, to a greater degree than most understand, and if they understand it, would admit.

Automatic Earth references an essay which we also had linked here by Eric Sprott called Wither Green Shoots that points out the unfortunate fact that of the 986 bank holding companies in the US, 980 of them lost money last year. The lucky six were the TBTF banks on major government subsidy.

So, where is the government going to liquidate the debt? And what effect will it have on dollar assets when they do it?

The Japanese solution was to ignore their bad debt and insolvent kereitsu, because admitting it would cause significant loss of face, not to mention financial loss, to an elite that does not permit such things to happen. So instead they arranged for their single party LDP system to drag the debt like a ball and chain through what came to be known as 'the lost decade' while they tried to make it go away by export mercantilism and crony monetarism wherein funds were given to the same kereitsu in a remarkably ambitious (and expensively wasteful) series of public works boondoggles.

Do you think the US can follow this path? As if. Japan started from a base as a net exporter with a huge trade surplus and little debt. Scratch that idea.

Someone has to end up 'holding the bag.' And the consumer cannot rise to the occasion, the banks are all insolvent and a sinkhole until they change their business models. So what will be 'the last bubble?' Bernanke has managed to monetize about 1.5 trillion dollars so far. Only 5.5 trillion more to go, if housing prices can stabilize at current levels, and employment return to pre-crash levels quickly.

A few European readers have expressed their relief, and some noticeable pride, that their banking and political system resolved its own debt crisis so quickly and easily. To the extent that their banks are holding dollar denominated financial assets, they have merely stopped the table from shaking for the moment, as their sand castles await the next mega tsunami to come rolling across the Atlantic.

Consider this well, and you will understand what is happening in the economy, and why certain things occur over the next 24 months, despite the fog of wars, currency and otherwise. And bear in mind that the only real limit and effective constraint on the Fed's ability to monetize debt is the value and acceptability of the bond, and the dollar in payment of interest, by foreign debt holders, as domestic debt holders are under legal compulsion by the law of legal tender.

And it was all unnecessary, attributable to the dishonesty and greed of a remarkably small number of men in New York and Washington who managed to rig the markets and the political process, with the acquiescence and support of a public grown complacent and in far too many cases, soft headed and corrupt.

These are the same people, along with their enablers, who are now preaching the virtues of austerity for the many, and free and easy markets for themselves. All gain, no pain. While the game is going it must still be played. Obama has been disappointing, but what comes next may well be worse, much worse.

Bernie Madoff was lying and cheating and taking money until the day he closed his doors.

Perhaps they are in denial, but surely they must hear the footsteps of history approaching. And their bravado is yet another bluff, and hides the rising stink of fear.

The Economic Policy Error Behind the Stock Market Rally and the Next Phase of the Financial Crisis

"The 20th century has been characterized by three developments of great political importance: The growth of democracy, the growth of corporate power, and the growth of corporate propaganda as a means of protecting corporate power against democracy."

Alex Carey

The strategy of the Bernanke Federal Reserve and of the Obama Administration's economic team is fairly clear: prevent the bank failures of the 1930's by propping up the biggest banks with huge infusions of publicly subsidized capital, and hope that they start lending again as the economy recovers. It is a variation of the 'trickle down' theory of economics adjusted by the perceived Fed policy errors of the first Great Depression, with little from the New Deal programs.

Bernanke is famously a student of the first Great Depression, even as General Joffre, the architect of the Ligne Maginot, was a student of the first World War. And Larry Summers is remarkably similar to Marshal Pétain. Tim, on the other hand, seems to be a student of very little, not even apparently of the tax code which he administers, except perhaps the art of being a manservant, a valet to the powerful.

Failure number one of course is that the banks that they chose to support are not responsible commercial banks engaged primarily in lending to small business and localized activity. Those banks are the local and regional banks that are failing in record numbers. The banks they chose to save are those who have heavily contributed to the campaign coffers and job prospects of Washington politicians. Goldman Sachs, for example, is a glorified hedge fund dedicated to speculation and enormous amounts of leverage. One only has to look at the source of their profits to understand what it is that they do with their capital and energy. And it is largely from 'trading.'

Bernanke has (so he thinks) cleverly tied up much of the liquidity with which he has infused the banks as secure reserves which are paying riskless returns thanks to his innovation in sustaining a floor under the ZIRP by paying interest directly. But if you look at what he is doing, and all Bernanke has done, even in his buying a trillion dollars of bad mortgage debt, he is merely rescuing well-heeled creditors and the banks and hedge funds who engaged in reckless speculation during a housing mania that the Greenspan Federal Reserve had fostered, using the very funds from the people who were most greatly harmed. It is an almost perfect betrayal.

If the Administration and the Congress then succeed in paying for this subsidy to the wealthy by redirecting the Social Security funds which the people have already paid to the government trust fund, by making the case that they already have been expropriated, the betrayal would be complete.

The lack of productive investment and genuine stimulus for the real economy seen so far in the enormous subsidies put forward is appalling. Bernanke and his colleagues Larry Summers and Tim Geithner would have us believe that they had no choice. But informed and experienced commentators such as William K. Black have told us how they have misrepresented their choices.

Their current policies seem to lead the US into a 'zombie economy' at best, in which the Banks are doing well, but almost everyone else suffers from stagflation, particularly the lower and middle classes who obtain their income from productive labor. At worst, the bubble bursts again, and there is another, more furious, leg down, with greater and more lasting damage done to the ordinary people.

So what would have worked? The Fed and Treasury could have backstopped the public instead of the Wall Street banks. They could have temporarily increased and extended the FDIC coverage to much higher levels to guard against further bank runs and depositor losses, and then started dismantling the Wall Street banks through orderly liquidations. What message would this have sent to both savers and speculators? What message has been sent instead?

They could have provided liquidity more directly to the commercial paper markets, rather than trying to shove it through the failing Wall Street banks with much heavier costs and asset support. They needed no new laws or tools to do this. And financial reform and higher taxes on those who obtain outsized wealth without productive work would have curtailed a recurrence.

For example, the Treasury program to forestall mortgage foreclosures has helped in total, since its inception, a total of approximately 167,000 families. This is in a period in which about 200,000 families PER MONTH were losing their homes. And during which time the too big to fail banks were paying out enormous bonuses as though nothing had ever happened to 'retain talent and reward performance,' even while receiving subsidized funds. Its tough love for everyone, from homeowners to wager earners to local banks, except for the ringleaders in Wall Street. And they continue to resist and lobby against even modest reforms, spending millions per day on Washington to buy influence, with your money. This is a banana republic, nothing but crony capitalism.

So why did they do what they did? Are they in league with the banks? Was this some sort of conspiracy? No, I doubt this, although there are far too many secretive aspects to completely dismiss it. And most recently the threat of criminal charges for the NY Fed in their coverup of the AIG bailout by the lone independent investigator, Neil Barofsky, who was appointed by the outgoing presidential administration.

It is important to recall that none of these men have ever held a productive job in the real economy in their entire lives. Even young Tim is no spring chicken at age 48.

They were always the pampered products of the academy, Wall Street, and the government. Even though Mr. Obama has served the community at the street level, he shows none of the tempering of judgement and skills that one perceives in someone who has had to stand their time in the arena of leadership. He is best described as an influencer, an organizer of a timid degree compared to the giants that preceded him in this field. It seems to have been more of a stepping stone to a power base than a calling.

So they took care of their own, the biggest institutions, because that is their weltanschauung, their bias, or view of the world. It has been said that the Federal Reserve is the worst place to locate certain aspects of banking regulation, because they have a complete aversion to ever allowing a bank to fail, as it is a virtual admission of personal failure. It runs against their nature. That is why the FDIC is much more effective in this, as they do not own, or are not owned by, the banks. That is also why placing Consumer Protection Against Banking Abuse is a cruel farce. Couple this with a career experience in which the world is viewed through the lens of cost plus monopoly business management, and privileged power, and their inability to make the tough but effective decisions seems more understandable.

And the promise of future positions, and large amounts of lobbying money to their friends and mentors and sponsors, and the policy error that is ruining the country seems more understandable.

So now we have another asset bubble in the making, a new Ponzi scheme in the US equity market fomented by the Wall Street Banks packed with public funds, seeking to drive prices higher, for the apparent reason of obtaining confidence from the public, but with the effect of selling assets at inflated prices to public institutions yet again, with the inevitable collapse to follow when the reality of their value is discovered. And so the credit crisis will morph into a currency and sovereign debt crisis.

What a shame. What a disappointing performance for a reform government that promised change that the people could believe in.

"...surveys show that the usual investors in major rallies – pension funds, hedge funds and retail investors – have not been net buyers of equities. And he says the most likely explanation for this anomaly in the biggest stock market rally since the 1930s is that major investment banks are the anxious buyers.

“Their buying would appear to be for one of two reasons. Firstly because they think the authorities will prevail in their (so far unsuccessful) efforts to inflate their way out of debt liquidation; or secondly because they are too big to fail and so can afford to take a huge gamble that enough buying will convince others to rush in and buy their inventory of risk assets at even higher prices."

Financial Times, Equity Rally Not Driven by the Usual Investors, Financial Times, April 28

And it should be noted that the Wall Street demimonde, the financial media, the financial commentators regulators and legislators, are widely supportive of this, because they draw they pay and employment prospects from an enlarged financial sector. So they are natural enthusiasts. Similem habent labra lactucam.

And of course there is the mainstream media, which is generally silent, or simply pleads confusion and ignorance, when things financial are discussed out of deference to their corporate owners, and the difficulties of actually engaging in investigative journalism, rather than acting as a guest host to a competitive debate among lobbyists and ideologues. It is the path of least resistance, and greatest returns. And it leads to an economy that consists of little else besides usury, propaganda, and fraud.

"I promise you a new Rome. I promise you a new Empire." Marcus Licinius Crassus, who defeated Spartacus, and helped give rise to the first of the Caesars

Why be negative? Better to be playing safe while Rome burns and the Republic falls.

NY Fed Cited in Cover-Up By SIGTARP's Barofsky - Possible Criminal Charges

It's never the crime, it's always the cover up.

This is beyond a doubt the story of the week. Neil Barofsky has been a thorn in the side of the Treasury Department and the Fed since he first took office.

I doubt there will be criminal charges filed against Turbo Tim personally, since in his case the clueless CEO defense may obtain some traction. Unless, that is, they have wiretaps and/or emails showing collusion with some of the bailed out banks, in either insider trading or the manipulation of assets for extraordinary gains.

It is a boiling scandal, and emblematic of the hidden corruption that has pervaded financial regulation in Washington for the past ten years at least. It did not start with Obama, but it may still bring down key members of his Administration.

Reform the financial system, audit the Fed.

Bloomberg
Barofsky Says Criminal Charges Possible in Alleged AIG Coverup
By Richard Teitelbaum
28 April 2010

April 28 (Bloomberg) -- ...That tense relationship [between Treasury and Barofsky] has grown out of Barofsky’s mandate to monitor and root out fraud and waste in the management of TARP, the $700 billion program passed in October 2008 to remove toxic debt from the banks. The special inspector general, in a series of reports, interviews and congressional hearings, has heaped criticism on the Treasury Department’s operation of the program.

Barofsky’s most recent broadside came on April 20, when a SIGTARP report labeled a housing-loan modification program funded with $50 billion of TARP money as ineffectual.

...The TARP watchdog has also criticized Treasury Secretary Timothy F. Geithner in reports and in congressional testimony for his handling of the process by which insurance giant American International Group Inc. was saved from insolvency in 2008, when Geithner was head of the Federal Reserve Bank of New York.

The secrecy that enveloped the deal was unwarranted, Barofsky says, adding that his probe of an alleged New York Fed coverup in the AIG case could result in criminal or civil charges.

In Senate Finance Committee testimony on April 20, Barofsky said SIGTARP would investigate seven AIG-linked mortgage-related securities similar to Abacus 2007-AC1, the instrument underwritten by Goldman Sachs Group Inc. that is at the center of a U.S. Securities and Exchange Commission lawsuit filed against the investment
bank on April 16.

...Barofsky and Geithner’s offices have gone toe-to-toe over AIG, alleged lax oversight of TARP funds and even over the question of whom Barofsky reports to.

Barofsky, a former federal prosecutor who was once the target of a kidnapping plot by Colombian drug traffickers, says he’s also looking into possible insider trading connected to TARP. He says his agency would want to know if bankers bought stock in their companies before it was made public that their institutions would get TARP
money, for example.

“There was a time when, if you got that word the stock price would go up, and if you were to trade on that information prior to the public announcement, that would be classic insider trading,” Barofsky says.

A Democrat named by a Republican president, Barofsky says missteps by both the George W. Bush and Barack Obama administrations are to blame for TARP’s failures.

“There’s a reason there are Tea Partiers out there, and when you look at it, anger at the bailout is one of the first things they talk about,” says Barofsky, referring to the anti- Obama political movement. “This Treasury Department and the previous Treasury Department bear some of the responsibility for not being straightforward with the American people.”

Barofsky criticized Geithner’s predecessor, Paulson, in an October 2009 report, saying Paulson publicly described the initial nine TARP bank recipients as healthy when he knew that at least one of them risked failure.

...SIGTARP has more than 40 agents, including former Secret Service, Federal Bureau of Investigation and Internal Revenue Service investigators, who sport blue windbreakers emblazoned with the SIGTARP seal.

They are authorized by Congress to carry guns -- Barofsky does not --make arrests, and subpoena and seize records.

In its late-January report, SIGTARP said that the banks rescued by TARP remained “too big to fail.” They still have an incentive to make risky wagers in order to generate the profits that will reward their executives, the report says.

“The definition of insanity is repeating the same actions over and over again and expecting a different result,” Barofsky says. “If the goal of TARP was to make sure we don’t have another financial collapse, well, obviously it’s made the likelihood of that much, much greater.”

....In a December report, Barofsky showed how insurance giants Hartford Financial Services Group Inc. and Lincoln National Corp. bought tiny thrifts -- one with just $7 million in assets -- to qualify for the TARP Capital Protection Program, which is designed to encourage bank lending. Hartford and Lincoln used the more than $4.3 billion in TARP funds they received almost entirely to finance insurance operations,
according to the report.

“Treasury didn’t have to approve that,” Barofsky says.

Allison wrote SIGTARP that buying troubled assets from insurance companies was part of TARP.

Janet Tavakoli, founder of Chicago-based Tavakoli Structured Finance Inc., says Barofsky hasn’t been aggressive enough. She says SIGTARP should be running criminal probes of the bankers who underwrote and managed the collateralized debt obligations that were at the center of the financial meltdown.

CDOs are bundles of mortgage-backed bonds and other debt sold to investors. Tavakoli says the CDO managers sometimes replaced relatively high-quality securities with new ones that were more likely to default.

“It is securities fraud if you take securities and package them and knowingly pass them off with phony labels,” she says.

Barofsky says investigations related to the underwriting and sale of CDOs are ongoing.

...Barofsky says he’s battling an entrenched culture of secrecy in the Treasury and elsewhere.

“One of the important lessons that I hope will be learned from this entire financial crisis is that the reflexive reaction against transparency, that disclosure will bring
terrible things, has not been proven true,” he says.

He offers the AIG bailout as an example. For more than a year, the New York Fed kept key aspects of the AIG bailout secret, including details of its own involvement and its decision to have AIG pay the insurer’s bank counterparties 100 cents on the dollar on the credit protection they’d bought against about $62 billion in CDOs.

In a November report, SIGTARP criticized Geithner’s failed efforts to obtain discounts from the banks.

After the banks had been
paid in late 2008, a lawyer from the New York Fed sought to have AIG keep the banks’ identities under wraps, as well as data about the CDOs that would have revealed which firms had underwritten the toxic bonds and which ones had managed them.

“There’s a lot of things about AIG that were not disclosed, based on the assumption that the sky would fall,” Barofsky says. “Transparency does a lot more good than bad.”

Barofsky says the question of whether the New York Fed engaged in a coverup will result in some sort of action.

“We’re either going to have criminal or civil charges against
individuals or we’re going to have a report,” Barofsky says. “This is too
important for us not to share our findings.”

He won’t say whether the investigation is targeting Geithner personally.

In a statement, the New York Fed said: “Allegations that the New York Fed engaged in a coverup of its intervention in AIG are not true. The New York Fed has fully cooperated with the Special Inspector General.”

Market Manipulation, Systemic Risk and Fraud, Pure and Simple, And It Continues Today

This article by the Financial Times should remove any doubt in anyone's mind that Goldman Sachs was willfully selling fraudulent financial instruments. It appears that they were working in conjunction with Ratings Agencies, Mortgage Origination Firms, and Hedge Funds to cheat investors.

"Cheat" means to circumvent or distort the normal price discovery process through misrepresentation, price manipulation, and omissions and distortion of key data.

Carl Levin summarized the situation in his opening statement this morning in tying together various Congressional hearings and investigations into aspects of the recent financial crisis and the underlying frauds. It sounds remarkably like the frauds that Enron had so recently inflicted on the American public.

In particular, Congressman Levin gave a good description of the key role that derivatives played in this control fraud.

"Of special concern was Goldman’s marketing of what are known as “synthetic” financial instruments. Ordinarily, the financial risk in a market, and hence the risk to the economy at large, is limited because the assets traded are finite. There are only so many houses, mortgages, shares of stock, bushels of corn or barrels of oil in which to invest.

But a synthetic instrument has no real assets. It is simply a bet on the performance of the assets it references. That means the number of synthetic instruments is limitless, and so is the risk they present to the economy. Synthetic structures referencing high-risk mortgages garnered hefty fees for Goldman Sachs and other investment banks. They assumed an ever-larger share of the financial markets, and contributed greatly to the severity of the crisis by magnifying the amount of risk in the system.

Increasingly, synthetics became bets made by people who had no interest in the referenced assets. Synthetics became the chips in a giant casino, one that created no economic growth even when it thrived, and then helped throttle the economy when the casino collapsed."

This is also a good description of the basis of the emerging scandal in the silver market, and other commodity markets such as those that Enron manipulated, in which synthetic bets are being used to manipulate price, and improbable sales are being misrepresented under the cover of secrecy and opaque markets as actual sales, when in fact they are merely derivative bets in which the seller may be manipulating the price and taking the other side of the sale above and beyond their actual delivery of the goods. When is Gary Gensler, the Goldman Sachs alumnus chairing the CFTC these days, finally going to institute some significant reforms in the US commodity futures exchanges?

The further question one might ask is, "When is the Administration going to put the FBI and the Justice Department to work in the more serious criminal investigation of the perpetrators of this fraud, with an eye to prosecutions under the RICO statutes?"

A lack of effective regulatory response and reform to the Enron and Worldcom scandals, facilitated by the inappropriate if not pandering monetary and regulatory policies of the privately owned Federal Reserve Bank, allowed the even larger housing bubble to form, bringing the US financial system, and indeed the global economy, to the brink of calamity.

This failure on the part of the US to rein in its financial sector jeopardizes all of us, because of the position of their banks in deals around the world, but in particular because of the place of the US dollar as the world's reserve currency.

President Obama does not need the Republicans to begin serious investigation by his branch of government. Indeed, this is why he was elected, and the promises that he had made to voters.

The existing financial reform legislation being debated in the Congress is unlikely to be strong enough to prevent the next Enron-like fraud, and indeed, is unlikely to even shut down the existing frauds in the commodity markets, recently disclosed by whistle-blowers.

We suspect the Administration and the Congress are putting forward a good show for the public, even while continuing to take millions of dollars in contributions from the industry, and the very firms that are under investigation like Goldman Sachs. Firms that have been and are continuing to receive government subsidies including but not restricted to TARP funds and FDIC subsidies, while they continue to lobby against financial reform and presumably their own investigations.

This is a reform government? Don't make us laugh.

Reform is best when it is driven by a desire to see oaths and promises upheld, and justice done. It is at its worst when it is just a political deal to 'get something done' to silence the voices of critics.

As an aside, in my estimation the reporting on Bloomberg financial television is hitting new lows each day. They are so willfully unbalanced and misleading in their reporting that it beggars the mind. It is a disgraceful sham to call it journalism.

Financial Times
Goldman ‘criticised $1bn loan product’
By Henny Sender, Francesco Guerrera, Stephanie Kirchgaessner
April 27 2010 00:52

Goldman Sachs officials privately disparaged a complex $1bn mortgage security that the Wall Street bank sold to investors, according to e-mails released by Senate investigators on the eve of hearings on Tuesday on the bank’s role in the financial crisis.

The disclosure of the e-mails by the Senate subcommittee on investigations, which is conducting the hearing, opens up a new front in Goldman’s battle to defend itself against accusations that it put its interests ahead of its clients.

The Securities and Exchange Commission earlier this month alleged that Goldman fraudulently failed to disclose that a hedge fund influenced the composition of a complex mortgage-related security, called Abacus, underwritten by the bank.

The Goldman communications released on Monday involve Timberwolf, another so-called collateralised debt obligation, or CDO, which was structured by the bank to give investors a chance to bet on subprime mortgages.

Tom Montag, then a senior Goldman executive and now head of corporate and investment banking at Bank of America, was quoted as describing the deal in an e-mail as follows: “Boy that timeberwof (sic) was one shi**y (sic) deal,” according to the Senate subcommittee.

The subcommittee said that Matthew Bieber, the Goldman trader responsible for managing the deal, later described the day that the Timberwolf security was issued as “a day that will live in infamy”, recalling the language President Franklin Roosevelt used for the Japanese attack against Pearl Harbor.

Lawyers for Basis Yield Alpha Fund, a hedge fund that was forced to liquidate after its $100m investment in Timberwolf plummeted in value, have been holding talks with Goldman about the deal, according to a person familiar with the matter.

Goldman officials declined to comment on the matter. Mr Montag also declined to comment.

Within five months of issuance, Timberwolf lost 80 per cent of its value. The security was liquidated in 2008. Among the biggest buyers of Timberwolf was a hedge fund under Bear Stearns Asset Management, which held $300m of the $1bn deal, before the Bear fund collapsed, according to the Senate material.

The Financial Crisis: Are We All Responsible?

"Whoever commits a fraud is guilty not only of the particular injury to him who he deceives, but of the diminution of that confidence which constitutes not only the ease, but the very existence of a society." Samuel Johnson

As the hearings and scandals progress, and the revelations and charges start to cut closer to the heart of the credit swindles, inevitably there will be a movement to say, "We are all responsible. Let's allow bygones to be bygones, it was all a misunderstanding. Let's move on to something new. Justice is not important, and cannot be done."

There will be long accountings of how the problems arose, and how changes in the banking laws, broker deregulation, and the erosion of elite privileges compelled the Wall Street banks to take more and greater risks, to violate unspoken understandings about customer relationships, to take great risks, to bend the laws, to use money and influence to suborn perjury and the breaking of oaths, and to generally undermine the fabric of government.

There will be long analyses that suggest that trust has been lost, the trust that binds the social and financial interactions of people. And there will be an effort to regain that trust, to promise change and reform, and of course, justice.

As for justice they will say, but aren't we all responsible? Didn't we all believe the promise that 'greed is good?'

No.

The overwhelming majority of people are hard working, honest in their dealings, more concerned with raising families than ruling others, if anything distracted by their day to day problems. Long suffering, patient to a fault, too willing to the give the Wall Street bankers the benefit of the doubt for the very reason of their own good natures. They could not imagine themselves doing the things of which these men stand accused, so they cannot believe that others would so willingly lie and deceive, cheat and steal, attack the very heart of the nation, while wrapping themselves in a flag of hypocrisy, for a few more dollars that they can hardly need or even personally spend.

And why? Because it feeds their sickened hearts, their pathological egos, and the need to make others suffer loss for their own gains. It sets them apart from a humanity which they hold in contempt enmingled with a nagging self-hate, makes them feel superior and worthwhile, and at the extreme even as gods among men.

So when the fresh public relations spin and propaganda from Wall Street and the financial sector's demimonde starts this week, and seeks to confuse the issues and distort the true nature of the fraud, recall who profited and who lost, who was caught with their hands deep in the pockets of the many, and even now stand arrogantly unrepentant with the ongoing misery of others to their account. And who stood idly by while charged by sworn oaths with protecting the innocent, the unsuspecting many, from the predatory, lawless few.

"When bad men combine, the good must associate; else they will fall one by one, an unpitied sacrifice in a contemptible struggle." Edmund Burke

Or, in the words of William K. Black and Elliot Spitzer in their essay Questions on the Goldman Scandal at New Deal 2.0:

"We applaud the SEC lawsuit, but it will not solve the problem. Unless our financial system is reformed to put adequate protections and checks and balances in place, we can expect this kind of fraud to continue. Financial executives will continue to take risks they do not understand. Those who control the flow of capital will continue to churn out profits with socially disastrous consequences."

The banks must be restrained, the financial system reformed, the economy brought bank into balance, and justice done though the mighty fall, before there can be any sustained recovery.

William K. Black's Testimony to the Congress on Lehman's fraud

The recent US financial crisis is always and everywhere founded in regulatory capture, dissembling, influence peddling, and fraud.

The Financial Oligarchy in the US

If you do nothing else this week, read the transcript or watch this video.

I have a serious difference of opinion with the speakers with regard to Robert Rubin and his role, but they make up for it with their description of Jamie Dimon as close to the White House and one of the most dangerous men in America today.

And I thought it was interesting that Simon Johnson would say openly that the ONLY Senator who is speaking the truth plainly is Ted Kaufman from Delaware.

Other than that they are substantially putting out a very sound and realistic view of the root of the problems that created the financial crisis, and what requires to be done to rebalance the system and create a sustainable recovery.

BILL MOYERS: And you say that these this oligarchy consists of six megabanks. What are the six banks?

JAMES KWAK: They are Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo.

BILL MOYERS: And you write that they control 60 percent of our gross national product?

JAMES KWAK: They have assets equivalent to 60 percent of our gross national product. And to put this in perspective, in the mid-1990s, these six banks or their predecessors, since there have been a lot of mergers, had less than 20 percent. Their assets were less than 20 percent of the gross national product.

BILL MOYERS: And what's the threat from an oligarchy of this size and scale?

SIMON JOHNSON: They can distort the system, Bill. They can change the rules of the game to favor themselves. And unfortunately, the way it works in modern finance is when the rules favor you, you go out and you take a lot of risk. And you blow up from time to time, because it's not your problem. When it blows up, it's the taxpayer and it's the government that has to sort it out.

BILL MOYERS: So, you're not kidding when you say it's an oligarchy?

JAMES KWAK: Exactly. I think that in particular, we can see how the oligarchy has actually become more powerful in the last since the financial crisis. If we look at the way they've behaved in Washington. For example, they've been spending more than $1 million per day lobbying Congress and fighting financial reform. I think that's for some time, the financial sector got its way in Washington through the power of ideology, through the power of persuasion. And in the last year and a half, we've seen the gloves come off. They are fighting as hard as they can to stop reform.

The Financial Oligarcy in the US - Bill Moyer's Journal

"Goldman Sachs Are Scum:" Max Keiser on Goldman Sachs From July 2009

Here is a video interview on France 24 television with Max Keiser speaking on Goldman Sachs from almost one year ago.

By the way, NO ONE who is a serious player on Wall Street is legitimately surprised by this, and probably no one in regulatory bodies are either, unless they are just showing up to collect a paycheck and obtain free Internet access.

The antics of Goldman Sachs have been getting by on a 'wink and a nod' from the regulators and the market for some time. Why? Because they are powerful, and because like Lehman and their off balance sheet frauds, they are almost ALL doing it on Wall Street as part of the franchise. Goldman has just been a pig about it, and probably burned some insiders and powerful investors in their fraudulent Abacus trade.

The excuses being made for Goldman by some on Bloomberg Television and CNBC are setting new lows in journalism. It was just a simple failure to disclosure Paulson's involvement right? Almost a technicality. No one forced the customers to buy those fraudulently packaged and labeled assets or stocks (this was a favorite excuse from Joe Kernan during the Internet/tech bubble collapse). No involvement from the Ratings Agencies in the purposeful crafting of a fraudulent financial instrument. Guest Calls Cramer a 'PR Man for Goldman Sachs' and is ejected from the show by the resident money honey.

As you may recall, Mr. Cramer represents himself as highly experienced in manipulating stocks using CNBC reporters from his days as a hedge fund manager. So it might not be so outre to inquire if he is working the other side of that Wall Street scam these days.

Why, these derivatives were SO complex that the poor Goldman management barely understood them themselves. They were tricked by Paulson. Tourre is a rogue trader. Bernie Madoff ate their Series 7 cheatsheets. Compliance was seconded to the Riviera. Lloyd was busy doing missionary work in Bangkok. More regulation will just hurt the recovery.

Don't just regulate them. Break them up. And audit the Fed.



I am glad the professor is from HEC. I did my international business MBA sequence (an extended field trip for adults, but the refreshments were good) at the 'other' business school in Paris at La Defense, ESSEC.

Max Keiser

AIG Gets Away With It

Do you think the paper shredders and 'delete keys' were working overtime?

Do you think the Justice Department was highly motivated to nail the guy who could probably implicate the biggest of the TBTF banks and their enablers in the government?

Do you think the American President was just playing you when he said, "I did not run for office to be helping out a bunch of fat cat bankers on Wall Street."

Do you think Joe knows where a lot of the bodies are buried - on Wall Street and in London and Washington?

Do you think it pays to be a 'Friend of Lloyd' and a feeder source of campaign contributions to most of the Congress?

Do you think the people are just itching to vote out every incumbent in November?

Do you think the spineless lack of serious investigation and reform is setting the US up again for another, even bigger, fianncial scandal and crisis?

You might be right.

CBS News
No Criminal Charges Likely in AIG Collapse
By Armen Keteyian
April 2, 2010 6:43 PM

CBS NEWS has learned that former AIG executive Joseph Cassano - the prime focus of the investigation into its collapse - will meet with Department of Justice attorneys next week in what will likely be an end to the two year criminal investigation into the company.

Sources tell CBS News that the criminal case against Cassano - once called "the Man who Crashed the World" - has "hit a brick wall" - meaning that it is likely no one will be held criminally liable for the downfall of the company that triggered a $182 billion dollar federal bailout.

Sources tell CBS News federal investigators have been unable to uncover any evidence that Cassano lied to his bosses or shareholders about financial problems at AIG.

In recent months, Cassano's lawyers - citing internal documents - argued that he never broke the law. Instead, he simply got caught up in a financial tsunami that engulfed Wall Street.

Reich Levels Broadside at Greenspan, Rubin, and Summers, and Phony Financial Reform

"It is impossible to calculate the moral mischief, if I may so express it, that mental lying has produced in society. When a man has so far corrupted and prostituted the chastity of his mind as to subscribe his professional belief to things he does not believe, he has prepared himself for the commission of every other crime." … Thomas Paine

In 1999 I started wondering what Robert Rubin might have said to Alan Greenspan in a private meeting in 1997 to cause him to reverse his policy bias shortly after his famous "irrational exuberance" speech. Greenspan embraced the monetary easing that led to the tech bubble, and joined the fight against regulation of derivatives, and the repeal of Glass-Steagall, in which the Fed was absolutely instrumental.

PBS Frontline - The Warning: The Roots of the Financial Crisis

This was no accident, in my opinion. This was no misplaced belief in 'the efficient market hypothesis.' This was not the culmination of the neo-liberal fascination with a mythology of human nature that would make Rousseau blush in its unthinking naiveté. And for Greenspan to say now, I am sorry, I guess I was mistaken, is more prevarication from the master dissembler.

There were plenty of enablers to this financial fraud. There always are many more people who do not act out of principle, or inside involvement and knowledge, but out of their own selfish bias and greed or craven fear that compels them to 'go with the flow.'

And there is little better example of this than the many people who are even now turning a willful eye away from the blatant government manipulation of the stock and commodity markets, in particular the silver market. They do not wish to believe it, so they ignore it, and even ridicule it depending on how deeply it affects their personal interests. But the overall body of evidence is compelling enough to provoke further investigation, and the refusal to allow audits and independent investigation starts to become an overwhelming sign of a coverup. I am not saying that it is correct, or that I know something, but I am saying to not investigate it thoroughly and to air all the details, is highly suspicious and not in the interests of the truth. I did not know, for example, that Madoff was conducting a Ponzi scheme, but the indications were all there and a simple investigation and disclosure would have revealed the truth, one way or the other.

"Fiat justitia ruat caelum." Let justice be done though the heaven's fall. This is the principle of English law that says that expediency, that appeals to a false 'national security,' that executive privilege and the secrecy of the powerful interests, are not to deter the light of exposure and the consequences of justice for all. This is the difference between a republic and a dictatorship of the oligarchy.

The military industrial complex came to power in the US on the back of the Red Scare and the smears and fear-mongering perpetrated by the Senator from Wisconsin who 'loved to hear the sound of his own voice, more than the truth,' and his minions in Roy Cohn, and the enablers in the press who were cowed into silence.

There will be smears and distractions, ridicule and old prejudices dug deep will be brought newly forward. False flags and scapegoats. Threats and warnings of collapse will be like bluffs run to encourage the people to hand over their liberty for safety. If you do not think this can happen you have not been paying attention.

The perpetrators of this latest fraud, this unleashing of darkness upon the world, will count on the fear and apathy of the many, and the cynical contempt of the fortunate for the disadvantaged, to make them all the unwitting accomplices in their own inevitable destruction. It has worked for them in the past.

One cannot fight this sort of evil with hatred and violence, or hysteria and intemperate accusations, for these are its creatures and it uses them always to further its ends. The only worthy adversary of the darkness is transparency, openness, justice, and truth based on facts, in the light of reason, with the guidance of the light of the world. We are not sufficient of ourselves to stand against it, and if we knock down the law, the Constitution, to chase it with expediency and private justice, what will protect us when it turns around to devour us?

But we should never be a willing victim, and even worse, a silent bystander or mocking accomplice. This is why were you born here and now, to stand witness to the truth, as you can find it and value it above all else.

It is not easy to find the truth, as it is a journey, a way that never ends. And without a proper guide and companionship, it may be all too easy to grow weary or panic, and lose one's bearings and one's heart. But sometimes it is easier to discover what is not the truth by its acts, its results, the fruit that it produces, and the darkness and secrecy in which it dwells.

And the truth is not with the financial system, and the web of deception and fraud, that has served it. "What is Truth?" he asked. And Pilate turned and washed his hands of it, and condemned himself, forever.

Robert Reich
Greenspan, Summers, and Why the Economy Is So Out of Whack
Sunday, April 4, 2010

"I’m in the “green room” at ABC News, waiting to join a roundtable panel discussion on ABC’s weekly Sunday news program, This Week.

Alan Greenspan is now being interviewed. He says he bore no responsibility for the housing bubble that catapulted the nation into a financial crisis in 2008 because no one could have known about the bubble when he chaired the Fed in the years before it burst. Larry Summers was interviewed just before Greenspan. He said the economy is expanding, that the Administration is doing everything it can to bring jobs back, and that the regulatory reform bills moving on the Hill will prevent another financial crisis.

What?

If any single person is most responsible for the financial crisis, it’s Alan Greenspan. He presided over a Fed that lowered interest rates to zero (adjusted for inflation) but failed to prevent banks from using essentially free money to speculate wildly. You do not have to be a brain surgeon to understand that if money is free, banks will take it and lend it out. And if oversight is inadequate, the banks will lend the money to anyone who can stand up straight and to many who cannot. The result will be a giant subprime lending bubble that will burst.

If any three people are most responsible for the failure of financial regulation, they are Greenspan, Larry Summers, and my former colleague, Bob Rubin. In 1999 they advised Congress to repeal the Glass-Steagall Act, which since 1933 had separated commercial from investment banking. By 1999, Wall Street was salivating over such a repeal because it wanted to create financial supermarkets that could use commercial deposits to place bets in the financial casino. That would yield the Street trillions.

At the same time, Greenspan, Summers, and Rubin also quashed the efforts of the Commodity Futures Trading Corporation to regulate derivatives, when its director began to worry that derivative trading already was getting out of control.

Yet Greenspan continues to take no responsibility for what occurred. In the interview he just completed he avoiding saying anything about the failure of the Fed under his watch to adequately oversee the banks, and the absence of sufficient financial regulation to begin with.

I dislike singling out individuals for blame or praise in a political system as complex as that of the United States but I worry the nation is not on the right economic road, and that these individuals — one of whom advises the President directly and the others who continue to exert substantial influence among policy makers — still don’t get it.

The direction financial reform is taking is not encouraging. Both the bill that emerged from the House and the one emerging from the Senate are filled with loopholes that continue to allow reckless trading of derivatives. Neither bill adequately prevents banks from becoming insolvent because of their reckless trades. Neither limits the size of banks or busts up the big ones. Neither resurrects the Glass-Steagall Act. Neither adequately regulates hedge funds.

More fundamentally, neither bill begins to rectify the basic distortion in the national economy whose rewards and incentives are grotesquely tipped toward Wall Street and financial entrepreneurialism, and away from Main Street and real entrepreneurialism. It was just reported, for example, that America’s top 25 hedge fund managers last year earned an average of $3 billion each. They continue to pay a federal income tax of 15 percent on most of that, by the way, because their lobbying efforts have been so successful.

Meanwhile, the so-called jobs bills emerging from Congress and the White House are puny relative to the challenge of restoring jobs in America. Last Friday’s jobs report, read most positively, showed 112,000 jobs added to the economy in March. But that’s below the number needed simply to keep up with an expanding population. In other words, we’re actually worse off now than we were a month ago. At the same time, the median wage of Americans with jobs keep dropping.

The American economy is seriously out of whack. The two people interviewed this morning don’t seem to understand how far."

Guest Post: Grading Alan Greenspan

The Maestro and the Hundred Year Flood
By Keith Hazelton, The Anecdotal Economist

Alan Greenspan’s self-serving “The Crisis,” a 66-page white paper outlining exactly why no part of the extant global financial/liquidity/credit/solvency/deleveraging crisis was the fault of the Federal Reserve whose board he chaired for 18 year or anyone or any other entity for that matter, contains among the many exculpatory assertions, a fascinating, if not stupefying, revelation that, in setting capital adequacy levels, reserves and leverage limits, policymakers:

“…have chosen capital standards that by any stretch of the imagination cannot protect against all potential adverse loss outcomes. There is implicit in this exercise the admission that, in certain episodes, problems at commercial banks and other financial institutions, when their risk-management systems prove inadequate, will be handled by central banks. At the same time, society on the whole should require that we set this bar very high. Hundred year floods come only once every hundred years. Financial institutions should expect to look to the central bank only in extremely rare situations.” (p16-17, all emphasis added.).

No sir, Sir Alan. Hundred year floods come on average only once every hundred years, as any undergraduate who has completed Statistics 101 would recognize, presumably based on many centuries of flood observations in a particular locale.

Now we know if one flips a coin 100 million times, a tabulation of heads/tails results likely will yield a result infinitesimally close to 50/50, so that one may conclude, on average, the actual observation results would prove the statistical probability for each flip that the coin lands heads-up is 50 percent (we conveniently are excluding any possibility of the coin landing, say, balanced vertically on edge.)

We also can be confident in such a large observation, however, that low-probability strings of 10, 20 or 30 consecutive heads-up or tails-up results – while extremely unlikely in 100 flips – would, in fact, be commonplace.

That such occurrences have low probabilities, even extremely low probabilities in smaller observation samples, is immaterial. Regardless of the number of observations, even low probability events are bound to occur, and they are neither randomly nor evenly distributed.

Similarly, nature has no constraints as to the frequency of hundred-year floods, only that on average they should occur once every century, but if it pleases nature to generate 10 hundred-year floods in a century, and none for the next 900 years, albeit a low-probability event, such an observation is completely within the framework of reality.

Neither are there constraints, apparently, on the frequency of meltdowns in the complex, deregulated financial environment we have invented and unleashed upon ourselves, even though, unlike nature, we completely are in control of the frequency and regularity of hundred-year financial disasters.

Which is what is so self-serving about the former Fed chief’s term paper. By defaulting to a “stuff-happens-once-every-hundred-years-so-there’s-no-point-in-trying-to-prevent-it-since-the-negative-effects-of-prevention-would-outweigh-the-flood-cleanup-cost” defense, Sir Alan absolves himself, his fellow FOMC decision-makers and Fed economists, successive Congresses and Administrations, the banking and financial system, China, Japan, Germany and, yes, the American “consumer” from any culpability in the generation-long, debt-fueled party which has induced this hundred-year hangover.

It’s also what’s wrong with economics in general. Since macro-economic theories and policies cannot be experimentally verified – we can’t go back in time to see how different decisions in the past would have altered the present and future – Mr. Greenspan expects to get a pass when he essentially observes that removing the Fed’s easy-money punchbowl earlier in decades past, or perhaps merely serving smaller portions of credit-debt-leverage punch along with deregulation cookies, somehow would have created a worse outcome than the present mess, and he concludes his term paper with an untestable assertion:

"Could the breakdown that so devastated global financial markets have been prevented? Given inappropriately low financial intermediary capital (i.e. excessive leverage) and two decades of virtual unrelenting prosperity, low inflation, and low long-term interest rates, I very much doubt it. Those economic conditions are the necessary, and likely the sufficient, conditions for the emergence of an income-producing asset bubble. To be sure, central banks have the capacity to break the back of any prospective cash flow that supports bubbly asset prices, but almost surely at the cost of a severe contraction of economic output, with indeterminate consequences." (All emphasis added.)

Which is followed by a monstrous, ominous, “be-glad-we-only-have-a-mess-of-this-hundred-year-severity-to-clean-up” whopper:

"The downside of that tradeoff is open-ended."

Cue scary music. Of course the consequences are indeterminate, Sir Alan, and we never will know what our present and our children’s future would have been like had other, more prudent fiscal and monetary policies had been adopted by all participants, but in parsing Mr. G’s conclusion above, we find exactly where, and with whom, the fault resides:

• Excessive leverage of financial institutions? Congresses, Administrations, the Federal Reserve, FDIC, OCC and OTS, without question.


• Two decades of virtual unrelenting prosperity? Apparently is was virtual prosperity, not real prosperity, because it came at a price of excessive, unsustainable leverage among individuals, businesses and governments.


• Low Inflation? An obsession with consumption of low-cost goods imported from low-cost, overseas manufacturers, again fueled with leverage, instead of savings.


• Low long-term interest rates? Why Alan, you remember, it’s the Federal Reserve which sets interest rates, and you were its chairman for 18 years.

The fault then, it would seem, dear Alan, “lies not in our stars, but in ourselves,” and certainly not in the hundred-year flood, to badly paraphrase William Shakespeare’s Caesar.

And it would be amusing – this whole “it’s nobody’s fault, stuff happens” bit about hundred year floods coming only once every hundred years – if not for the physical, emotional and national wealth-destroying carnage of “The Crisis” of the last three years.

Not to mention the many years, if not decades, in our now less prosperous future which will be required to rebuild ourselves from the ground up after such an easily avoidable catastrophe, unlike nature’s hundred-year floods, of our own design.

OK, so it’s only the second draft of his term paper – maybe he’ll revise the final publication to attribute at least some culpability, but don’t count on it. Right now, I give it a "D+."

The Maestro and the Hundred-Year Flood