A Quartet for the End of Time

"The most ethereally beautiful music of the twentieth century was first heard on a brutally cold January night in 1941, at the Stalag VIIIA prisoner-of-war camp, in Görlitz, Germany. The composer was Olivier Messiaen, the work “Quartet for the End of Time.”

Messiaen wrote most of it after being captured as a French soldier during the German invasion of 1940. The première took place in an unheated space in Barrack 27. A fellow-inmate drew up a program in Art Nouveau style, to which an official stamp was affixed: “Stalag VIIIA 49 geprüft.” Sitting in the front row—and shivering along with the prisoners—were the German officers of the camp.

The title does not exaggerate the ambitions of the piece. An inscription in the score supplies a catastrophic image from the Book of Revelation: “In homage to the Angel of the Apocalypse, who lifts his hand toward heaven, saying, There shall be time no longer.”

Messiaen’s quiet answer to the ultimate questions of fear and faith stayed with me...not because he was a greater composer than Bach or Beethoven but because his reply came out of an all-too-modern landscape of legislated inhumanity. In the face of hate, this honestly Christian man did not ask, “Why, O Lord?” He said, “Lord, I love you.”

Alex Ross, Revelations: The story behind Messiaen’s Quartet for the End of Time, The New Yorker, March 2004

Front-Running the Markets And the Sickness Unto Death

"And that is the nature of Goldman. Gather up as many customers as possible, aggregate the available information to achieve a superior market view and then relentlessly extract rents from the marketplace. Better yet, tell yourself you’re smarter than everyone else and you’ve earned the rents from the symbiosis."

James Rickards, former General Counsel of Long Term Capital Management

This is a nice, concise, albeit somewhat simplified description, from a more mainstream and highly credible source, of how the markets are operating today to the extreme disadvantage of the public and the real economy. Between front-running and naked short selling the banks have things pretty well under their control.

The market makers are the Wall Street banks are the prop trading desks, trading at high frequency slightly ahead of the markets while peeking into your accounts, gaining just enough unfair advantage to defy the odds of winning and losing in a fairly regulated market.

From James Rickards, The Frog, The Scorpion, and Goldman Sachs:

"Now consider another example of data mining, not done by retail firms, but by giant investment banks such as Goldman Sachs. These banks have thousands of customers transacting in trillions of dollars in stocks, bonds, commodities and foreign exchange daily. By using systems with anodyne names like SecDB, Goldman not only sees the transaction flows but some of the outright positions and whether they are bullish or bearish. Data mining techniques are just as effective for this market information as they are for Google, Amazon, Wal-Mart and others. It’s not necessary to access individual accounts to be useful. The data can be aggregated so that the bank can look at positions on a portfolio basis without knowing the name of each customer.

One need not be a market expert to imagine the power of this information. You can see which way the winds are blowing before the storm hits. You get a sense of when momentum is draining out of a trade so you can get out of it before the market turns. You can see when bullish or bearish sentiment reaches extremes, suggesting it may soon turn the other way. This use of information is the ultimate type of insider trading because it does not break the law; you are not stealing the information, you own it.

So what do Goldman and others do with this mountain of market information? Do they send coupons to customers or text them with great trading ideas? A few lucky customers, usually giant hedge funds, may get a call on some insights, but this mountain of immensely valuable market information is used mainly to power their giant proprietary trading desks allowing them to rack up consistent excess returns. Economists have a name for this also. It’s called “rent seeking,” which means taking value from others without any contribution to productivity. The difference between value-added behavior and rent seeking is like the difference between Amazon trying to sell me a book or planning to steal my library. In nature, the name for a rent seeker is parasite.

The ideal existence for a parasite is symbiosis, or balance, where it offers some minimal service to the host, (some parasites devour insects which annoy the host), while extracting as much sustenance from the host as possible without killing it. But sometimes the symbiosis is disturbed and the parasite takes too much and actually destroys the host, which can end up destroying the parasite as well. This recalls the fable of the scorpion and the frog. Both are on the edge of a river looking for a way to cross. The scorpion cannot swim and asks the frog for a ride on its back. The frog at first says, “no,” for fear of being stung. But the scorpion assures the frog it will not sting him because they would both drown. The frog agrees to carry the scorpion. Once they reach the middle of the river, the scorpion stings the frog and they begin to drown. The frog cries, “why did you do that?” and the scorpion replies, “it’s my nature.”

And that is the nature of Goldman. Gather up as many customers as possible, aggregate the available information to achieve a superior market view and then relentlessly extract rents from the marketplace. Better yet, tell yourself you’re smarter than everyone else and you’ve earned the rents from the symbiosis."

How does it continue? Like the bailout of AIG, the stewards of the public trust are choosing to turn a blind eye. The politicians are the beneficiaries of huge campaign contributions. The regulators are overwhelmed, and desirous of Wall Street positions. The other traders are jackals, seeking to follow the lions as they tear into the flocks of sheep and cattle. The economists are timid, adverse to anything but painfully granular analysis of carcasses of other people's ideas and orthogonal scenarios.

"Worse yet, the parasite is now killing the host. The United States is drowning in debt, much of it incurred to bail out Goldman, AIG, GMAC, Fannie Mae and all of the other rent seekers. The U.S. is like the frog; well meaning but blind to nature of scorpions.

Wall Street likes to say, “what’s good for Wall Street is good for Main Street.” That’s the scorpion talking. What’s good for Wall Street is good for Wall Street. Never forget it."

The financial system did not need to be saved by bailouts, it needs to be saved from itself. Their insatiable greed, monstrous appetites, and arrogant pride will take them over the cliff.

Which would not be bad in itself, if our governments had not made us hostage to their reckless schemes, and if we, in our resignation and despair, do not allow them to take us with them.

The First Year of Obama's Failed Economic Policies: The Worst May Yet Be Avoided

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

We have been saying this for some time. The report below from Neil Barofsky says essentially the same thing.

"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," Barofsky wrote.

The US is heading towards a double dip recession, and the next leg down may be more fundamentally damaging than before.

The reason for the decline will be the abject failure of the Obama Administration to address the roots of the problem, instead wasting trillions to prop up a banking system that is a useless distortion.

Worse than useless really, because it actually presents a huge negative influence by stifling the recovery, channeling funds to the crony capitalists and non-producing wealth extraction sector, who tax the people like feudal lords under license of a corrupt government.

So far, Obama has failed the people, but preserved the banks. A source of his failure has been his weakness in listening to Larry Summers and Tim Geithner, the Rubin-Clinton wing of Democrats, who have well established their incompetence and inability to act at a level suitable to their positions. They are captive to special interests, locked into the ways of thinking that brought the world to the point of crisis.

In response to the next leg down, Bernanke will monetize debt at an even more furious and clever pace, perhaps in alliance with the Bank of England and Bank of Japan. The ECB resists, and all who balk will be chastised by the monied powers and their demimonde, the ratings agencies and global banks. This is modern warfare of a sort.

We do not expect the corruption of the world's reserves to be so blatant that the inflation will immediately appear, except in more subtle manner. At some point it may explode, especially if Ben is particularly good at concealing its subtle growth.

Monetary inflation is the growth of the money supply in excess of the demands of the real economy, not nominal growth of the supply. The US has been shifting its growth into the reserves of other central banks for the past twenty years or so, and those eurodollar present an overhang that will egulf the Treasury should they come home to roost too quickly. The great nations see the US problem, most surely. The question is how to handle it, gracefully, since the US is still the world's sole superpower, and given to covert pre-emptive action when it feels threatened.

It is not a pretty picture. We had high hopes for Obama, because he was capable of rising to the challenge. He had the backing of his people. And he is choosing failure, for whatever reason. That is certainly is the template of a modern tragedy.

“Given the same amount of intelligence, timidity will do a thousand times more damage than audacity.” Karl von Clausewitz

ReviewJournal
Watchdog: Bailouts created more risk in system
By DANIEL WAGNER and ALAN ZIBEL
AP Business Writers

WASHINGTON (AP) -- The government's response to the financial meltdown has made it more likely the United States will face a deeper crisis in the future, an independent watchdog at the Treasury Department warned.

The problems that led to the last crisis have not yet been addressed, and in some cases have grown worse, says Neil Barofsky, the special inspector general for the trouble asset relief program, or TARP. The quarterly report to Congress was released Sunday.

"Even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car," Barofsky wrote.

Since Congress passed $700 billion financial bailout, the remaining institutions considered "too big to fail" have grown larger and failed to restrain the lavish pay for their executives, Barofsky wrote. He said the banks still have an incentive to take on risk because they know the government will save them rather than bring down the financial system.

Barofsky also said his office is investigating 77 cases of possible criminal and civil fraud, including crimes of tax evasion, insider trading, mortgage lending and payment collection, false statements and public corruption.

One case concerns apparent self-dealing by one of the private fund managers Treasury picked to buy bad assets from banks at discounted prices. A portfolio manager at the firm apparently sold a bond out of a private fund, then repurchased it at a higher price for a government-backed fund. A rating agency had just downgraded the bond, so it likely was worth less, not more, when the government fund bought it. The company is not being named pending the outcome of Barofsky's investigation.

Barofsky renewed a call for Treasury to enact clearer walls so that such apparent conflicts are less likely.

Treasury said it welcomed Barofsky's oversight but resisted the call to erect new barriers against conflicts of interest. The new rules "would be detrimental to the program," Treasury spokeswoman Meg Reilly said in a statement. The existing compliance rules "are a rigorous and effective method of protecting taxpayers," she said.

Much of Barofsky's report focused on the government's growing role in the housing market, which he said has increased the risk of another housing bubble.

Over the past year, the federal government has spent hundreds of billions propping up the housing market. About 90 percent of home loans are backed by government controlled entities, mainly Fannie Mae, Freddie Mac and the Federal Housing Administration.

The Federal Reserve is spending $1.25 trillion to hold down mortgage rates, and millions of homeowners have refinanced at lower rates.

"The government has stepped in where the private players have gone away," Barofsky said in an interview. "If we take government resources and replace that market without addressing the serious (underlying) concerns, there really is a risk of" artificially pushing up home prices in the coming years.

The report warned that these supports mean the government "has done more than simply support the mortgage market, in many ways it has become the mortgage market, with the taxpayer shouldering the risk that had once been borne by the private investor."

Barofsky's report echoed concerns raised by housing experts in recent months, as home sales and prices rebounded. They warn that the primary reason for the turnaround last year has been billions of dollars in federal spending to lower mortgage rates and prop up demand.

Once that spigot of cash is turned off, they caution, the market will be vulnerable to a dramatic turn for the worse. Daniel Alpert, managing partner of investment bank Westwood Capital, wrote in a report that national home prices are bound to fall 8 to 10 percent below the lows of last spring.

"The lion's share of the remaining decline will occur in markets that saw sizable bubbles but have not yet retrenched," he wrote.

Officials from the Obama administration counter that massive federal intervention has helped the housing market stabilize and prevented more dire consequences.

Barofsky's report also disclosed that, while the Obama administration has pledged to spend $75 billion to prevent foreclosures, only a tiny fraction - just over $15 million - has been spent so far. Under the Making Home Affordable program, only about 66,500 borrowers, or 7 percent of those who signed up, had completed the process as of December.

He said the key to preventing future crises is to reform Fannie Mae and Freddie Mac, create and improve loan underwriting and supervision of banks. He stopped short of endorsing specific proposals for overhauling financial regulation, but said many of the proposals would go far to improving the system.

NY Fed Conspired to Hide Details of AIG Bailouts from Public and Congress

“I have to think this train is probably going to leave the station soon and we need to focus our efforts on explaining the story as best we can. There were too many people involved in the deals -- too many counterparties, too many lawyers and advisors, too many people from AIG -- to keep a determined Congress from the information.” James P. Bergin, NY Fed, in an email to his Fed colleagues

'Though it is hard to divine much understanding from the unredacted filing, it has become clear that Goldman had more involvement than previously believed: In addition to the credit default swaps it bought from AIG, the filing shows that Goldman Sachs also originated many of the underlying assets that AIG and the New York Fed bought back from Société Générale.

The American people have the right to know how their tax dollars were spent and who benefited most from this back-door bailout," said Kurt Bardella, spokesman for Issa. "Now that it's public, let's see if the sky really does fall as the New York Fed said it would to justify its coverup."

Other lawmakers believed that the New York Fed was trying to hide its ties to Goldman Sachs.' AIG Reveals the Story - CNN

"Wednesday’s hearing described a secretive group deploying billions of dollars to favored banks, operating with little oversight by the public or elected officials.

We’re talking about the Federal Reserve Bank of New York, whose role as the most influential part of the federal-reserve system -- apart from the matter of AIG’s bailout -- deserves further congressional scrutiny...

By pursuing this line of inquiry, the hearing revealed some of the inner workings of the New York Fed and the outsized role it plays in banking. This insight is especially valuable given that the New York Fed is a quasi-governmental institution that isn’t subject to citizen intrusions such as freedom of information requests, unlike the Federal Reserve.

This impenetrability comes in handy since the bank is the preferred vehicle for many of the Fed’s bailout programs. It’s as though the New York Fed was a black-ops outfit for the nation’s central bank...

New York Fed staff and outside lawyers from Davis Polk & Wardell edited AIG communications to investors and intervened with the Securities and Exchange Commission to shield details about the buyout transactions, according to a report by Issa.

That the New York Fed, a quasi-governmental body, was able to push around the SEC, an executive-branch agency, deserves a congressional hearing all by itself." Secret Banking Cabal Emerges From AIG Shadows - Reilly - Bloomberg

And this is the same Federal Reserve that was proposed by the Obama economic team to be the 'super regulator' with broad powers and consumer protection responsibilities over the entire financial system.

The Fed is a private agency, quasi-governmental, but not subject to discretionary audit or review by the government, except at arms length, through managed testimony. They make a point of demanding secrecy and independence at their own discretion, oversight on their terms.

This is a choice promoted by Geithner and Summers, who are creatures of the Fed and the banking system, almost sure to return to sinecures there after leaving government. And it is tempting choice for a president and congressmen of a weak character. If the Fed bears the responsibility they do not have to budget money and manage the process, and they can point fingers at its every failure. It is a formula for conflicts of interest, soft bribery and corruption. Confidence does matter.

The Fed and Blackrock are becoming to the Obama Administration what Halliburton and KBR were to Bush and Cheney, and the banking crisis -- the new Iraq. Can the handling of it be so inept that it becomes Obama's Watergate as well?

The Fed must be audited, and its power to disburse public money to private banks, except in the normal course of open market operations, curtailed. Only the Congress has the right to tax the people, and the Fed's ability to disburse billions of funds at its own discretion to domestic and foreign banks is a de facto form of taxation, since the Fed operates on a cost plus basis, without budgetary allotment from the Congress. The obligations of the Federal Reserve flow directly from its balance sheet, which is the basis for the national currency.

And despite the arguments from the Financial Times to 'stop snooping' the press and the Congress should delve deeply into the AIG bailout, because enough has already been exposed that it smells to high heaven.

It is remniscent of Watergate and Enron to see Timmy, Ben, and Hank falling all overthemselves in establishing that they had no knowledge or involvement in the payments of billions to AIG.

The truth must come out.

My own suspicion is that Goldman 'set up' AIG for a proper face ripping with its financial arrangements, playing both sides of the deal. There is further evidence of money flowing from Goldman to AIG executives before the bailout occurred. And at the least the major players saw what was happening and turned a blind eye to it, busying themselves with other things and establishing their plausible deniability.

A proper investigation can establish any specific guilt. It is a shocking scandal that the FBI and Justice Department are still not more actively involved in real investigation rather than these staged hearings.

But this incident should make it absolutely clear why the Fed cannot enjoy the expansion of its role as the regulator of the system. It is too conflicted in its mission of monetary independence, and at the same time the creature of the banks, to be a true civil servant fully answerable to the Congress.

Yes I understand the distinctions between the Fed Board of Governors and the NY Fed with regard to FOIA requests, and the appointmet process. What I am saying is that the distinctions obviously do not hold, do not work. The Fed is one organization. These distinctions are remniscent of the banking scandals exposed by then AG Elliot Spitzer. They simply do not work. They are a thin facade.

As Representative Marcy Kaptur told Geithner at the hearing: “A lot of people think that the president of the New York Fed works for the U.S. government. But in fact you work for the private banks that elected you.”

One difference I have noted, compared to the English and the Japanese, is that the American officials and CEO's never hesitate to hide behind the incompetency defense, but rarely have the dignity to resign when they do so. This is because they have no shame, no real loyalty to anyone but themselves.

And at the very least Geithner should be fired, if not for complicity, then for sheer inability to do the job.


Timeline of NY Fed Payments and Cover-Up: BusinessWeek

Financial Crisis Ahead - Thomas Donlan - Barron's

Paulson's People Colluded with Goldman to Destroy AIG and Get a Backdoor Bailout - Fiderer - Huffington

Sham Transactions That Led to AIG's Downfall - Fiderer - Huffington


Law: Corporate Counsel
Ssshhh ... E-mails Show Lawyers' Push to Keep AIG Details Hush-Hush
By Sue Reisinger
January 26, 2010

E-mails among in-house lawyers at the Federal Reserve Bank of New York show they worked feverishly in early January 2009 to find a way to keep secret the details behind American International Group, Inc.'s $60 billion in payments to counterparties in risky credit default swaps. And, the e-mails show, the lawyers weren't trying to hide the details just from the public but also from Congress.

A Fed spokesman was not immediately available for comment.

The records show that in-house counsel James Bergin wrote to New York Fed general counsel Thomas Baxter Jr. on Jan. 8 that the Securities and Exchange Commission had asked AIG to either disclose the payment schedule, including the counterparties' names and the amount of payments, or file a request for confidentiality. With the request, the SEC requires filers to send the confidential material so it could be reviewed by staff. It also requires the filer to consent to disclosure to Congress and other agencies, he said.

"This requirement is giving us some pause," Bergin wrote to Baxter, "since we haven't otherwise disclosed this information to Congress." Copied were various Fed lawyers, including deputy general counsel Joyce Hansen and banking supervisor Stephanie Heller. Congress had approved AIG's bailout funds, which were used in the payments. Bergin said Fed lawyers were considering their options on the SEC's request.

On the morning of Jan. 13, according to another Bergin e-mail to in-house lawyers, he spoke by phone to SEC staff members who were "receptive" to his request for confidentiality. Included on the call, he said, was Alison Thro, senior counsel for Freedom of Information Act matters at the Fed. The SEC agreed to consider Bergin's request for an alternative procedure for reviewing the schedule — "rather than it [the schedule] becoming an SEC record subject to their FOIA process."

Later that same day Diego Rotsztain, a lawyer then with Davis Polk & Wardwell which was representing the New York Fed, wrote to AIG deputy general counsel Kathleen Shannon about "special SEC procedures." The e-mail said AIG should expect a call from the SEC about delivering the confidential data "via courier to a specific person who will be responsible for ensuring that the letter does not get into the wrong hands and is afforded the appropriate attention."

At 8:46 p.m. that evening, Bergin sent an e-mail updating Baxter, Hansen, and the other in-house attorneys. It said the SEC had agreed to "implement special security procedures for handling of the document," including limiting the reviewing staff to two people, keeping it in a locked safe during the process and, if confidentiality was approved, "providing for its storage in a special area at the SEC where national security related files are kept."

The e-mails are part of some 250,000 documents produced by the New York Fed in response to a subpoena from the House Committee on Oversight and Government Reform. The committee has scheduled a hearing on the AIG bailout on Wednesday, and among the witnesses testifying will be Baxter and Treasury Secretary Timothy Geithner, who was Baxter's boss and president of the regional Fed during the bailout crisis.

The committee wants to know why the counterparties were paid nearly 100 cents on the dollar when other banks were negotiating much lower percentages on credit default debt, and why the Fed tried to hide the information.