Pat Chaote in 'Saving Capitalism'

Pat Chaote has published a book titled ‘Saving Capitalism’.  I heartily recommend it as mandatory reading for all Americans.

This is a short history of what has gone wrong over the past decade and also why.  I have already posted that the cause of the financial disaster was outright treason.  This is the first economist to come out and spell out the details.  He adds to my own observations and for exactly the same reasons. 

He also rings the bell on the advent of state sponsored capitalism.  This is not going to go away and must be vigorously regulated.  This is an area that I admit I was aware of but had been happy to largely ignore.  That is not a good idea.  We do not have to wait here for human stupidity to arise before we act.

He outlines several excellent recommendations to remedy the situation that need to be implemented.  It is likely that this will not happen during Obama’s tenure.

He rightly describes the present situation as a depression with a small capital. 

If you want to understand what is presently taking place in the USA, then get this book.

As he clearly points out, the collapse has mirrored the collapse of the Great Depression.  We are now entering the second phase of the collapse cycle, were good business is strangled for cash and a second wave of massive layoffs is in store.  People with good jobs and partially paid for homes will suddenly find themselves forced into liquidation.

That is the present risk that must be averted.  It is now that you want to be scared.  Saving Wall Street cannot save Main Street if the banking industry is unable to lend.

California is on the verge of collapse and must internalize its banking arrangements as soon as possible in the same way as was done by Montana and Alberta during the Depression.  It is the only way in which the political forces in the state can be brought to heel.

Europe is struggling to contain Greece and may not succeed.  In that case, expect the currency arrangements to become at least partially unstuck until it gets sorted out.

Krugmann on Executive Compensation

That rewarding non stakeholders of an enterprise on the basis of short term results is not a sound idea should be self evident. A true stakeholder would in fact reduce his share of profits in order to increase his equity worth through the expansion of value leveraged out of options.

Anything else is down right stupid. A sensible package should always be a good salary and a share in a funded options package

The rise of mega corporations in which acquiring a meaningful stake is impossible has created this present morass of compensation strategies.

In any event, the compensation of bankers is a particular problem unlike any other. The Bank has a special license that allows them to borrow short term and lend long term at a decent multiple. This means that they actually print liquidity in the system. That means that they and almost no one else must be prudent in their lending practices. That means that compensation must reflect the fact that the business should only make a modest profit. If a bank decides it needs to fund something adventurous, it must be made to make the project a stand alone corporation with no formal ties to the bank that could create liability for the bank.

And it is a pretty poor project if unable to attract independent banking support.

So long as bankers compensation is tied to short term results and they can print money to cover over their misdeeds, their behavior will not change. In fact, it cannot change. After all, how difficult is it to have Luigi borrow ten million to acquire Antonio’s failing enterprise packing seven million in debt, somehow securitized by doubtful assets and then resold off shore to cash out the banking profits.

We also need to have the banks separate out true performance compensation from that derived from ordinary brokering. That is were the huge compensations came from in the first place. The president of a bank finds it hard to pay ten times his own salary to some employee he does not even like. Yet properly these are direct costs of real sales and should be actually accounted for as such and disclosed separately.

Many businessmen have destroyed their newly acquired business for failing to realize this. That is why it is unwise to ever wrap the compensation of the rainmakers with the compensation of the operations personnel and the executive.

Op-Ed Columnist

Reform or Bust

http://www.nytimes.com/2009/09/21/opinion/21krugman.html?em

By PAUL KRUGMAN

Published: September 20, 2009

In the grim period that followed Lehman’s failure, it seemed inconceivable that bankers would, just a few months later, be going right back to the practices that brought the world’s financial system to the edge of collapse. At the very least, one might have

But now that we’ve stepped back a few paces from the brink — thanks, let’s not forget, to immense, taxpayer-financed rescue packages — the financial sector is rapidly returning to business as usual. Even as the rest of the nation continues to suffer from rising unemployment and severe hardship, Wall Street paychecks are heading back to pre-crisis levels. And the industry is deploying its political clout to block even the most minimal reforms.

The good news is that senior officials in the Obama administration and at the Federal Reserve seem to be losing patience with the industry’s selfishness. The bad news is that it’s not clear whether President Obama himself is ready, even now, to take on the bankers.

Credit where credit is due: I was delighted when Lawrence Summers, the administration’s ranking economist, lashed out at the campaign the U.S. Chamber of Commerce, in cooperation with financial-industry lobbyists, is running against the proposed creation of an agency to protect consumers against financial abuses, such as loans whose terms they don’t understand. The chamber’s ads, declared Mr. Summers, are “the financial-regulatory equivalent of the death-panel ads that are being run with respect to health care.”

Yet protecting consumers from financial abuse should be only the beginning of reform. If we really want to stop Wall Street from creating another bubble, followed by another bust, we need to change the industry’s incentives — which means, in particular, changing the way bankers are paid.

What’s wrong with financial-industry compensation? In a nutshell, bank executives are lavishly rewarded if they deliver big short-term profits — but aren’t correspondingly punished if they later suffer even bigger losses. This encourages excessive risk-taking: some of the men most responsible for the current crisis walked away immensely rich from the bonuses they earned in the good years, even though the high-risk strategies that led to those bonuses eventually decimated their companies, taking down a large part of the financial system in the process.

The Federal Reserve, now awakened from its Greenspan-era slumber, understands this problem — and proposes doing something about it. According to recent reports, the Fed’s board is considering imposing new rules on financial-firm compensation, requiring that banks “claw back” bonuses in the face of losses and link pay to long-term rather than short-term performance. The Fed argues that it has the authority to do this as part of its general mandate to oversee banks’ soundness.

But the industry — supported by nearly all Republicans and some Democrats — will fight bitterly against these changes. And while the administration will support some kind of compensation reform, it’s not clear whether it will fully support the Fed’s efforts.

I was startled last week when Mr. Obama, in an interview with Bloomberg News, questioned the case for limiting financial-sector pay: “Why is it,” he asked, “that we’re going to cap executive compensation for Wall Street bankers but not Silicon Valley entrepreneurs or N.F.L. football players?”

That’s an astonishing remark — and not just because the National Football League does, in fact, have pay caps. Tech firms don’t crash the whole world’s operating system when they go bankrupt; quarterbacks who make too many risky passes don’t have to be rescued with hundred-billion-dollar bailouts. Banking is a special case — and the president is surely smart enough to know that.

All I can think is that this was another example of something we’ve seen before: Mr. Obama’s visceral reluctance to engage in anything that resembles populist rhetoric. And that’s something he needs to get over.

It’s not just that taking a populist stance on bankers’ pay is good politics — although it is: the administration has suffered more than it seems to realize from the perception that it’s giving taxpayers’ hard-earned money away to Wall Street, and it should welcome the chance to portray the G.O.P. as the party of obscene bonuses.

Equally important, in this case populism is good economics. Indeed, you can make the case that reforming bankers’ compensation is the single best thing we can do to prevent another financial crisis a few years down the road.

It’s time for the president to realize that sometimes populism, especially populism that makes bankers angry, is exactly what the economy needs.

The Great Recession One Year In

It is difficult to recall that one year ago, the greatest market break in our lifetimes had not occurred yet. Since then several things have clearly happened. First off, everyone is poorer but they also know today how much poorer and what they have to do to put themselves right. If it is bankruptcy, then so be it. The expectation that it may get seriously worse is now abating.

The banking system is still intact, though not so much poorer as with new stakeholders who will keep the reins tight. The banking system must have tight reins. Competing for higher rates of returns is not the way to run a bank. There you prosper by improving the quality of your loan portfolio. A good bottom line is a pleasant surprise at the end of the year.

We can be sure that ratios are been hauled back and that all those old loans are been reassessed and resolved as much as possible.

Equities are been sorted out and next years earnings will drive markets.

Employment is still quite weak and so is the housing market because we have not resolved the foreclosure crisis, although it is essentially locked for the moment. A wave of buying could resolve that problem if the right tools are put in place. It is still the best place to focus fresh lending.

Through all this, the energy business is on a tear and the wind business in particular. We need that energy and the short time from inception to build out makes it a financing cinch. We need all of it and more because we all know that the electric car is coming just as fast as we can solve the related problems. Winds great advantage today is thirty years of engineering in the bank. Geothermal will be as good twenty years from how.

If there is one thing that disturbs me today, it is the lack of technical vision coming out of the Whitehouse. In an America crying for brave new technology initiatives, I must go to South Korea and China who are getting of the button and diverting resources to do the best thing possible now.

Perhaps it is too much to ask, and yes, all the bad news has not hit home yet. But a government revenue guarantee will spring a massive energy build out over the next five years and it will all be financeable with no likely loss to the government. This would produce huge numbers of new jobs and suck up the slack. Canada learned this with the Tarsands which were launched fully in the face of the 1981 oil slump. Today it is the only trillion barrel reserve been actively exploited at reasonable levels and effectively at that. Research is now opening up superior protocols that will make it much better. None of this would have been possible had the government not stepped in with early guarantees.

Otherwise, for the next three years of Obama’s administration, we will be dealing with the fall out from bankrupt states. Which type of headline would you prefer?

In the meantime, this article by Zuckerman enumerates all the depressing news and interpretations. You do not want to know this, but we are living through a blow by blow recreation of the great depression. That is the bad news.

The good news is that a lot of the right things have been done to prevent a real depression and we are now entering a strong rebound. We can be nervously optimistic.

By MORTIMER ZUCKERMAN

http://online.wsj.com/article/SB124753066246235811.html

The recent unemployment numbers have undermined confidence that we might be nearing the bottom of the recession. What we can see on the surface is disconcerting enough, but the inside numbers are just as bad.

The Bureau of Labor Statistics preliminary estimate for job losses for June is 467,000, which means 7.2 million people have lost their jobs since the start of the recession. The cumulative job losses over the last six months have been greater than for any other half year period since World War II, including the military demobilization after the war. The job losses are also now equal to the net job gains over the previous nine years, making this the only recession since the Great Depression to wipe out all job growth from the previous expansion.

Here are 10 reasons we are in even more trouble than the 9.5% unemployment rate indicates:

- June's total assumed 185,000 people at work who probably were not. The government could not identify them; it made an assumption about trends. But many of the mythical jobs are in industries that have absolutely no job creation, e.g., finance. When the official numbers are adjusted over the next several months, June will look worse.

- More companies are asking employees to take unpaid leave. These people don't count on the unemployment roll.

- No fewer than 1.4 million people wanted or were available for work in the last 12 months but were not counted. Why? Because they hadn't searched for work in the four weeks preceding the survey.

- The number of workers taking part-time jobs due to the slack economy, a kind of stealth underemployment, has doubled in this recession to about nine million, or 5.8% of the work force. Add those whose hours have been cut to those who cannot find a full-time job and the total unemployed rises to 16.5%, putting the number of involuntarily idle in the range of 25 million.

- The average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That's 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration).

- The average length of official unemployment increased to 24.5 weeks, the longest since government began tracking this data in 1948. The number of long-term unemployed (i.e., for 27 weeks or more) has now jumped to 4.4 million, an all-time high.

- The average worker saw no wage gains in June, with average compensation running flat at $18.53 an hour.

- The goods producing sector is losing the most jobs -- 223,000 in the last report alone.

- The prospects for job creation are equally distressing. The likelihood is that when economic activity picks up, employers will first choose to increase hours for existing workers and bring part-time workers back to full time. Many unemployed workers looking for jobs once the recovery begins will discover that jobs as good as the ones they lost are almost impossible to find because many layoffs have been permanent. Instead of shrinking operations, companies have shut down whole business units or made sweeping structural changes in the way they conduct business. General Motors and Chrysler, closed hundreds of dealerships and reduced brands. Citigroup and Bank of America cut tens of thousands of positions and exited many parts of the world of finance.

Job losses may last well into 2010 to hit an unemployment peak close to 11%. That unemployment rate may be sustained for an extended period.

Can we find comfort in the fact that employment has long been considered a lagging indicator? It is conventionally seen as having limited predictive power since employment reflects decisions taken earlier in the business cycle. But today is different. Unemployment has doubled to 9.5% from 4.8% in only 16 months, a rate so fast it may influence future economic behavior and outlook.

How could this happen when Washington has thrown trillions of dollars into the pot, including the famous $787 billion in stimulus spending that was supposed to yield $1.50 in growth for every dollar spent? For a start, too much of the money went to transfer payments such as Medicaid, jobless benefits and the like that do nothing for jobs and growth. The spending that creates new jobs is new spending, particularly on infrastructure. It amounts to less than 10% of the stimulus package today.

About 40% of U.S. workers believe the recession will continue for another full year, and their pessimism is justified. As paychecks shrink and disappear, consumers are more hesitant to spend and won't lead the economy out of the doldrums quickly enough.

It may have made him unpopular in parts of the Obama administration, but Vice President Joe Biden was right when he said a week ago that the administration misread how bad the economy was and how effective the stimulus would be. It was supposed to be about jobs but it wasn't. The Recovery Act was a single piece of legislation but it included thousands of funding schemes for tens of thousands of projects, and those programs are stuck in the bureaucracy as the government releases the funds with typical inefficiency.

Another $150 billion, which was allocated to state coffers to continue programs like Medicaid, did not add new jobs; hundreds of billions were set aside for tax cuts and for new benefits for the poor and the unemployed, and they did not add new jobs. Now state budgets are drowning in red ink as jobless claims and Medicaid bills climb.

Next year state budgets will have depleted their initial rescue dollars. Absent another rescue plan, they will have no choice but to slash spending, raise taxes, or both. State and local governments, representing about 15% of the economy, are beginning the worst contraction in postwar history amid a deficit of $166 billion for fiscal 2010, according to the Center on Budget and Policy Priorities, and a gap of $350 billion in fiscal 2011.

Households overburdened with historic levels of debt will also be saving more. The savings rate has already jumped to almost 7% of after-tax income from 0% in 2007, and it is still going up. Every dollar of saving comes out of consumption. Since consumer spending is the economy's main driver, we are going to have a weak consumer sector and many businesses simply won't have the means or the need to hire employees. After the 1990-91 recessions, consumers went out and bought houses, cars and other expensive goods. This time, the combination of a weak job picture and a severe credit crunch means that people won't be able to get the financing for big expenditures, and those who can borrow will be reluctant to do so. The paycheck has returned as the primary source of spending.

This process is nowhere near complete and, until it is, the economy will barely grow if it does at all, and it may well oscillate between sluggish growth and modest decline for the next several years until the rebalancing of excessive debt has been completed. Until then, the economy will be deprived of adequate profits and cash flow, and businesses will not start to hire nor race to make capital expenditures when they have vast idle capacity.

No wonder poll after poll shows a steady erosion of confidence in the stimulus. So what kind of second-act stimulus should we look for? Something that might have a real multiplier effect, not a congressional wish list of pet programs. It is critical that the Obama administration not play politics with the issue. The time to get ready for a serious infrastructure program is now. It's a shame Washington didn't get it right the first time.

Mr. Zuckerman is chairman and editor in chief of U.S. News & World Report.

We Continue to Fiddle

So what are they all doing? That really is the question been asked today by this article in the New York Times. Obama is put to work jawboning a little confidence back into the economy while everyone else keeps counting the cost.

The core economy has begun turning over again and order books will now fatten up. It is just that they will be smaller because a new base has now been established and it is without the super driver of excessive consumer credit. Whatever your income, you have less credit and you are also paying things off.

Wherever the floor is, and I think that it is been established now, it is a lot less at the consumer level than for most of the economy. Government spending is actually growing sharply in an attempt to offset the loss of consumer demand. However, the bad news about collapsing government revenues has not hit home yet. Recall, it is only the federal government that can print fiat money. The rest have to collect taxes.

California is ugly, but there are hundreds of jurisdictions that are going to be in shock before this is over.

In the meantime, the degenerating housing market continues to eat away at household finances and sound financial institutions.. This will not end until this problem is finally addressed and it will not simply go away. This is what can give us 1932 all over again.

As I have explained earlier, the government must intervene in the mortgage market by unilaterally resetting the foreclosure laws in which a two tier system is established in which half the property is forfeited to the lender in exchange for a fresh long term mortgage based on sixty percent of the present market value of the remaining fifty percent. The lender eats the loss now but this is already back stopped by the government. The lender gains a customer who is likely able to pay off the mortgage in good time and is also able to bid the remaining fifty percent after the first half is paid of in say ten years.

Obviously, if the borrower cannot handle that, in time normal rules kick in and he is removed. If he can handle that and do so expeditiously, he will bid the balance at a much higher price that alleviates the losses created for the bank and the national treasury.

As an ongoing system, the banking system will quickly learn to properly work within the new context and likely do so quite profitably. The initial struggle will be to keep lenders from immediately gaming the program to make it a problem rather than a solution.

The old system emerged out of the depression and was always flawed but we put up with it. It has now been gamed by easy money operators who have exposed the weaknesses and also confirmed the original wisdom of the folks who fabricated much of the system.

The Economy Is Still at the Brink

By SANDY B. LEWIS and WILLIAM D. COHAN
Published: June 7, 2009

http://www.nytimes.com/2009/06/07/opinion/07cohanWEB.html?pagewanted=1&_r=2

WHETHER at a fund-raising dinner for wealthy supporters in Beverly Hills, or at an Air Force base in Nevada, or at Charlie Rose’s table in New York City, President Obama is conducting an all-out campaign to try to make us feel a whole lot better about the economy as quickly as possible. “It’s safe to say we have stepped back from the brink, that there is some calm that didn’t exist before,” he told donors at the Beverly Hilton Hotel late last month.

Mr. Obama thinks that the way to revive the economy is to restore confidence in it. If the mood is right, the capital will flow. But this belief is dangerously misguided. We are sympathetic to the extraordinary challenge the president faces, but if we’ve learned anything at all two years into the worst financial crisis of our lifetimes, it is that a capital-markets system this dependent on public confidence is a shockingly inadequate foundation upon which to rest our economy.

We have both spent large chunks of our lives working on Wall Street, absorbing its ethic and mores. We’re concerned that nothing has really been fixed. We’re doubly concerned that people appear to feel the worst of the storm is over — and in this, they are aided and abetted by a hugely popular and charismatic president and by the fact that the Dow has increased by 35 percent or so since Mr. Obama started to lay out his economic plans in March. But wishing for improvement and managing by the Dow’s swings are a fool’s game. (Disclosure: One of us, Mr. Lewis, was convicted on federal charges of stock manipulation in 1989, pardoned by President Bill Clinton in 2001 and had his lifetime trading ban overturned by the Securities and Exchange Commission in 2006; documents relating to the case can be found at sblewis.net.)

The storm is not over, not by a long shot. Huge structural flaws remain in the architecture of our financial system, and many of the fixes that the Obama administration has proposed will do little to address them and may make them worse. At another fund-raising event, for Senator Harry Reid, President Obama said: “We didn’t ask for the challenges that we face. But we are determined to answer the call to meet those challenges, to cast aside the old arguments and overcome the stubborn divisions and move forward as one people and one nation .... It will take time but I promise you, I promise you, I’ll always tell you the truth about the challenges we face.”

Keeping that statement in mind — as well as an abiding faith in the importance of properly functioning capital markets — we have come up with a set of questions meant to challenge a popular president, with vast majorities in Congress, to find the flaws in the system, to figure out what’s being done to fix them and to get to the truth about the difficulties we face as we set out to restore the proper functioning of our markets and our standing in the world.

Six months ago, nobody believed that our banking system was well designed, functioning smoothly or properly regulated — so why then are we so desperately anxious to restore that model as the status quo? Nearly every new program emanating these days from the Treasury Department — the Term Asset-Backed Securities Loan Facility, the Public Private Investment Program, the “stress tests” of major banks — appears to have been designed to either paper over or to prop up a system that has clearly failed.

Instead of hauling out the new drywall to cover up the existing studs, let’s seriously consider ripping down the entire structure, dynamiting the foundation and building a new system that rewards taking prudent risks, allocates capital where it is needed, allows all investors to get accurate and timely financial information and increases value to shareholders and creditors.

As a start, the best-compensated executives at the top of these big banks, hedge funds and private-equity firms should be treated like general partners of yore. If a firm takes prudent risks that pay off, this top layer of management should be well compensated. But if the risks these people take are imprudent and the losses grave, they should expect to lose their jobs. Instead of getting guaranteed salaries or huge bonuses, they should have the bulk of their net worth completely at risk for a long stretch of time — 10 years come to mind — for the decisions they make while in charge. This would go a long way toward re-aligning the interests of these firms with those of their shareholders and clients and the American people, who have been saddled with their risks and mistakes.

Why is so much effort being put into propping up those at the top of the economic pyramid — the money-center banks, the insurance companies, the hedge funds and so forth — when during a period of deflation like the one we are in, any recovery will come only by restoring the confidence of the people down at the bottom of the pyramid?

Confidence will return only when jobs can be found and mortgage payments are made. Even if Mr. Obama’s claim is true that his $780 billion stimulus package “saved or created” some 150,000 jobs, we seem a long way away from the point where those struggling to get by will feel like spending again. What happens when people buy a car once every 10 years instead of once every two or three, especially now that we taxpayers own such a big percentage of the American auto industry?

Instead of promising the imminent return of good times, why isn’t Mr. Obama talking more about the importance of living within our means and not spending money we don’t have on things we don’t need? We used to be a frugal nation. The president should be talking about kicking our addictions to easy credit, to quick fixes and to a culture of more is better (and Congress’s new credit-card legislation, while perhaps eliminating some of the worst aspects of that industry, certainly didn’t send the right message about personal finance).

Gas-guzzling S.U.V.’s, cigarette boats, no-income mortgages and private jets should be relegated to the junk heaps of history, or better yet, put in a museum dedicated to never forgetting the greed and avarice that led us so far astray.

Why is the morphine drip still in the veins of the financial system? These trillions in profligate federal spending are intended to make us feel better again even though feeling pain, and dealing with it responsibly, would be healthier in the long run. It is time to stop rescuing the banks that got us into this mess. If that means more bank failures on a grander scale or the dismemberment of Citigroup, so be it. Depositors will be protected — up to $250,000 per account — but shareholders, creditors and, sadly, many employees will, for the long-term health of the system, need to feel the market’s wrath.

Is there to be any limit on bailouts? We have now thrown money at the big banks, any number of regional ones, insurance companies, General Motors, Chrysler and state and local governments. Will we soon be bailing out Dartmouth, which just lost its AAA bond rating? Is there no room left for what the Austrian economist Joseph Schumpeter termed “creative destruction”? And what is the plan to get the American people out of all these equity stakes we now own and don’t want?

Furthermore, for government leaders to decide who shall live and who shall die in an economic sense opens them up to legitimate charges of crony capitalism and favoritism. We will benefit in the long run from a return to market discipline.

Why has Mr. Obama surrounded himself largely with economic advisers who are theoreticians and academics — distinguished though they may be — but not those who have sat on a trading desk, made a market, managed a portfolio or set a spread?

In our view, one of the ways out of this economic conundrum is to have experienced traders — not hothouse flowers — design incentives that will encourage the market to have buyers and sellers meet anew around the proper valuations of assets, not some artificial construct of a market propped up by a pliant Financial Accounting Standards Board or government-sponsored programs that appear to be virtually giving money away to hedge funds and private-equity firms so that they will buy assets they would not ordinarily buy. We’re not talking about putting the fox in charge of the henhouse, just putting people who know how markets function in the real world into the important seats in Washington.

Why isn’t the Obama administration working night and day to give the public a vastly increased amount of detailed information about what happens in financial markets? Ever since traders started disappearing from the floor of the New York Stock Exchange in the last decade of the 20th century, there has been less and less transparency about the price and volume of trades. The New York Stock Exchange really exists in name only, as computers execute a very large percentage of all trades, far away from any exchange.

As a result, there is little flow of information, and small investors are paying the price. The beneficiaries, no surprise, are the remains of the old Wall Street broker-dealers — now bank-holding companies like Goldman Sachs and Morgan Stanley — that can see in advance what their clients are interested in buying, and might trade the same stocks for their own accounts. Incredibly, despite the events of last fall, nearly every one of Wall Street’s proprietary trading desks can still take huge risks and then, if they get into trouble, head to the Federal Reserve for short-term rescue financing.

Here’s something that should change in terms of transparency. The most recent price that any stock traded for should be published online in real time for all to see. And the public should have access to a new type of electronic ticker that provides market information in language that all can understand, not just the insiders.

As for those impossibly complex securities that caused so much of the trouble — among them derivatives, credit-default swaps and asset-backed securities — the S.E.C. should have the power to make public all the documentation surrounding these weapons of mass financial destruction, including all data about the current costs of buying and selling them and the cash flow underlying them. We also need widely accessible, real-time reporting of all trades in the bond market. We bet Mike Bloomberg’s company could help design such a system for our benefit.

Why is the government still complicit in making the system ever less transparent, even when it comes to what should clearly be considered public information? For instance, it took more than a year for the Federal Reserve to disclose that it had agreed to pay BlackRock — the huge money manager that is 45 percent owned by Bank of America — and others $71 million in a no-bid contract to manage the $30 billion of toxic assets that JPMorgan did not want when it bought Bear Stearns in March 2008. And that is only one of the five contracts BlackRock has with the government as a result of this crisis — the nature of the other contracts remains secret.

Treasury Secretary Timothy Geithner has made much of financialstability.gov, the Treasury’s new Web site dedicated to “transparency, oversight and accountability.” But look it over and try to find, for example, just one record of a bona fide credit-default swap, or the names of the hedge-fund and private-equity investors who have participated in the Term Asset-Backed Securities Loan Facility bonanza. It was only a lawsuit filed by a watchdog group that convinced the Treasury to divulge details of former Secretary Henry Paulson’s October meeting with the chief executives of the 10 largest Wall Street firms to force them to take money from the Troubled Asset Relief Program. A lawsuit filed last November by Bloomberg News to force the Federal Reserve to reveal the details on more than $2 trillion in loans that went to banks including Citigroup and Goldman Sachs is still pending in federal court.

And what has become of the S.E.C.’s year-old investigation into who made short-dated, out-of-the-money bets in March 2008 hoping Bear Stearns would fail — bets that were suddenly worth millions of dollars when the company did collapse later that month?

Why do we still not know why Mr. Paulson, Mr. Geithner and the Federal Reserve chairman, Ben Bernanke, allowed Lehman Brothers to file bankruptcy last Sept. 15 but then, a day later, saved A.I.G.? Or why last November this trio decided to absorb potential losses on $301 billion of Citigroup’s shaky assets, when conventional wisdom among insiders held that they were worth only $150 billion at best?

Also, before Dick Fuld, Lehman Brothers’ chief executive, appeared before the House Committee on Oversight and Government Reform last October, it demanded from company executives boxes of documents about what happened at Lehman and why. Where are those documents?

Why hasn’t President Obama insisted on public hearings over what happened during this financial crisis?
Not a single top executive of a Wall Street securities firm responsible for causing the financial crisis has had the courage or the decency to step forward in front of the cameras and explain to the American people in his own words exactly how and why he allowed his firm to cause the crisis. Both Mr. Fuld and Alan Schwartz, the chief executive of Bear Stearns at the end, in their Congressional testimony blamed the proverbial once-in-a-century financial tsunami. Do they or any of their peers really think this is true?

There may be a way to find out. There is much talk nowadays coming from top bankers — Lloyd Blankfein of Goldman Sachs, Jamie Dimon of JPMorganChase, John Mack of Morgan Stanley and even Ken Lewis of Bank of America — about seeing how quickly they can repay to the Treasury the TARP money Mr. Paulson forced on them. One precondition of their being allowed to repay the funds should be a requirement that each gives a public deposition and explains, under oath, what truly happened and why.

Such a public hearing would be meant only to offer a truthful assessment of the errors in judgment made at each firm and to promote understanding, so that we — somehow — can avoid repeating the same mistakes again. It would not be about indictments. These men should be offered use immunity from prosecution for their honest testimony, but only with a clear understanding that the failure to tell the truth at any point would result in serious legal consequences. The hearing could be complemented by a truth-seeking commission established to hear the accounts of several people who have departed the scene, including, among others, Mr. Paulson, former Treasury Secretary Robert Rubin and former Wall Street chiefs like Mr. Fuld, Hank Greenberg of A.I.G., Sanford Weill of Citigroup, Jimmy Cayne of Bear Stearns and Stan O’Neal of Merrill Lynch. While far removed from their positions of authority, these men have tales to tell about how this crisis got started and why.

Why are we not looking to change our current civil and criminal racketeering statutes, which are playing a perverse role in investigations of the crisis? Statutes meant to give prosecutors extraordinary powers of seizure before an indictment is handed up, or to impose treble damages, are appropriately used to break up rings of criminal behavior like the Mafia or drug cartels.

But a few clever prosecutors could use such laws to bring charges against people or firms in the financial services industry whose pattern of bad behavior played important roles in the collapse. Such outright seizure of capital or assets through use of the racketeering statutes can do much harm by giving prosecutors an unnecessarily powerful role in our capital markets. There must be a way to keep what is good about the statutes and to make sure they are not used for ill in trying to get to the bottom of the financial meltdown.

We are in one of those “generational revolutions” that Jefferson said were as important as anything else to the proper functioning of our democracy. We can no longer pretend that our collective behavior as a nation for the past 25 years has been worthy of us as a people. Many of us hoped that Barack Obama’s election would redress the dire decline in our collective ethic. We are 139 days into his presidency, and while there is still plenty of hope that Mr. Obama will fulfill his mandate, his record on searching out the causes of the financial crisis has not been reassuring. He must do what is necessary to restore the American people’s — and the world’s — faith in American capitalism and in our nation. Answering our questions may help us get back on track. But time is wasting.

Sandy B. Lewis, an organic farmer, founded SB Lewis & Co., a brokerage house. William D. Cohan, a contributing editor at Fortune and former Wall Street banker, is the author of “House of Cards: A Tale of Hubris and Wretched Excess on Wall Street.”

McChrystal's Afghan Confrontation

The author is clearly an apologist for pacifism and makes the appropriate arguments while also attacking the reputations of the soldiers engaged in this war. We read these items to observe how these positions are pieced together and argued even though they try one’s patience.

War requires two parties. At one time, the acquisition of national territory was a tenuous claim to legitimacy. That is long since removed from the global equation, particularly with the success of effective city states with massive populations and the existence of global enterprises commanding massive resources.

Today’s wars are tribalism gussied up with a religious veneer. Economic rationales are nonexistent except as a minor sideshow. The Pathans and Baluchis occupy some of the worst terrain on earth yet they desire a greater whateverstan. That is the price of ignorance.

Surely we have learned that war has almost no rules. Torture is abhorred, and can be avoided by skilled interrogators who know the ground. Yet events in time and place will obviate very aggressive and usually unsuccessful methods because of tactical necessity. So accept the inevitable and establish tactical protocols so the lower pay scales can make the right decision and have their actions reviewed and condoned after the fact. The military is good at doing that.

We like to forget that a large number of true believer Nazis failed to survive the war. And even the allies got into the concentration camp business with unacceptable losses after the war ended. Since everyone was very much on the same page, no one squawked. Since my own limited sampling of world war two combatants gave me almost universal confirmation, the real numbers had to be atrocious. That is just the way it is. Get over it.

Conflict with radical Islam was actively avoided by Bill Clinton for the good reason of not picking a fight. His reward was to watch 3,000 Americans die. This is a fight that is enjoined and we will end it on our terms just as often as radical Islam wants to dance. Will it be over soon? Not likely, but tasking our best anti insurgency expert is certainly the way to go.

It will be ended when a modern educated Islamic world with modern freedoms for all emerges and stifles the ignorant fools who want to kill.


Obama's Animal Farm: Bigger, Bloodier Wars Equal Peace and Justice

By Prof James Petras

www.globalresearch.ca/index.php?context=va&aid=13644

May 17, 2009

“The Deltas are psychos...You have to be a certified psychopath to join the Delta Force...”, a US Army colonel from Fort Bragg once told me back in the 1980's. Now President Obama has elevated the most notorious of the psychopaths, General Stanley McChrystal, to head the US and NATO military command in Afghanistan. McChrystal's rise to leadership is marked by his central role in directing special operations teams engaged in extrajudicial assassinations, systematic torture, bombing of civilian communities and search and destroy missions. He is the very embodiment of the brutality and gore that accompanies military-driven empire building. Between September 2003 and August 2008, McChrystal directed the Pentagon's Joint Special Operations (JSO) Command which operates special teams in overseas assassinations.

The point of the ‘Special Operations' teams (SOT) is that they do not distinguish between civilian and military oppositions, between activists and their sympathizers and the armed resistance. The SOT specialize in establishing death squads and recruiting and training paramilitary forces to terrorize communities, neighborhoods and social movements opposing US client regimes. The SOT's ‘counter-terrorism' is terrorism in reverse, focusing on socio-political groups between US proxies and the armed resistance. McChrystal's SOT targeted local and national insurgent leaders in Iraq, Afghanistan and Pakistan through commando raids and air strikes. During the last 5 years of the Bush-Cheney-Rumsfeld period the SOT were deeply implicated in the torture of political prisoners and suspects. McChrystal was a special favorite of Rumsfeld and Cheney because he was in charge of the ‘direct action' forces of the ‘Special Missions Units. ‘Direct Action' operative are the death-squads and torturers and their only engagement with the local population is to terrorize, and not to propagandize. They engage in ‘propaganda of the dead', assassinating local leaders to ‘teach' the locals to obey and submit to the occupation. Obama's appointment of McChrystal as head reflects a grave new military escalation of his Afghanistan war in the face of the advance of the resistance throughout the country.

The deteriorating position of the US is manifest in the tightening circle around all the roads leading in and out of Afghanistan's capital, Kabul as well as the expansion of Taliban control and influence throughout the Pakistan-Afghanistan border. Obama's inability to recruit new NATO reinforcements means that the White House's only chance to advance its military driven empire is to escalate the number of US troops and to increase the kill ratio among any and all suspected civilians in territories controlled by the Afghan armed resistance.

The White House and the Pentagon claim that the appointment of McChrystal was due to the ‘complexities' of the situation on the ground and the need for a ‘change in strategy'. ‘Complexity' is a euphemism for the increased mass opposition to the US, complicating traditional carpet ‘bombing and military sweep' operations. The new strategy practiced by McChrystal involves large scale, long term ‘special operations' to devastate and kill the local social networks and community leaders, which provide the support system for the armed resistance.

Obama's decision to prevent the release of scores of photographs documenting the torture of prisoners by US troops and ‘interrogators' (especially under command of the ‘Special Forces'), is directly related to his appointment of McChrystal whose ‘SOT' forces were highly implicated in widespread torture in Iraq. Equally important, under McChrystal's command the DELTA, SEAL and Special Operations Teams will have a bigger role in the new ‘counter-insurgency strategy'. Obama's claim that the publication of these photographs will adversely affect the ‘troops' has a particular meaning: The graphic exposure of McChrystal's modus operendi for the past 5 years under President Bush will undermine his effectiveness in carrying out the same operations under Obama. Obama's decision to re-start the secret ‘military tribunals' of foreign political prisoners, held at the Guantanamo prison camp, is not merely a replay of the Bush-Cheney policies, which Obama had condemned and vowed to eliminate during his presidential campaign, but part of his larger policy of militarization and coincides with his approval of the major secret police surveillance operations conducted against US citizens.

Putting McChrystal in charge of the expanded Afghanistan-Pakistan military operations means putting a notorious practitioner of military terrorism – the torture and assassination of opponents to US policy – at the center of US foreign policy. Obama's quantitative and qualitative expansion of the US war in South Asia means massive numbers of refugees fleeing the destruction of their farms, homes and villages; tens of thousands of civilian deaths, and eradication of entire communities. All of this will be committed by the Obama Administraton in the quest to ‘empty the lake (displace entire populations) to catch the fish (armed insurgents and activists)'.\

Obama's restoration of all of the most notorious Bush Era policies and the appointment of Bush's most brutal commander is based on his total embrace of the ideology of military-driven empire building. Once one believes (as Obama does) that US power and expansion are based on military conquests and counter-insurgency, all other ideological, diplomatic, moral and economic considerations will be subordinated to militarism. By focusing all resources on successful military conquest, scant attention is paid to the costs borne by the people targeted for conquest or to the US treasury and domestic American economy. This has been clear from the start: In the midst of a major recession/depression with millions of Americans losing their employment and homes, President Obama increased the military budget by 4% - taking it beyond $800 billion dollars.

Obama's embrace of militarism is obvious from his decision to expand the Afghan war despite NATO's refusal to commit any more combat troops. It is obvious in his appointment of the most hard-line and notorious Special Forces General from the Bush-Cheney era to head the military command in subduing Afghanistan and the frontier areas of Pakistan.

It is just as George Orwell described in Animal Farm: The Democratic Pigs are now pursuing the same brutal, military policies of their predecessors, the Republican Porkers, only now it is in the name of the people and peace. Orwell might paraphrase the policy of President Barack Obama, as ‘Bigger and bloodier wars equal peace and justice'.

Credit were Credit is Due

This item shows were far too many folk’s heads are at. Even the pros are in denial over what has taken place. The USA in particular but not necessarily anybody else throughout the world has destroyed their credit granting system. This means that the USA will not be reentering the global economy as a force until this is properly repaired. The rest of the globe has eaten severe damage but it did not destroy their retail credit system. It was not overly strong elsewhere to begin with, so the collapse of national lenders, painful corporately, does not reach down to the retail customer in quite the same way.

The US credit system was anchored on real estate equity and future equity supported by consumer cash flow.

The real estate equity has evaporated and the only solution other than the solution that I have put forward is to allow the housing inventory to stagnate at a price level were no one can afford to sell and until such time as all the inventory has been sold on into stronger hands. This must take years and could easily take a decade. Lenders that are still alive can now only lend on the basis of cash flow. This is a much different proposition. It makes lending much more conservative.

In the meantime, we are discovering that desperate credit card companies have been gaming their clients in all sorts of ways to attempt to collect the maximum interest rate. So unless you have a support staff worthy of a loan shark yourself you are very vulnerable regardless of how good you think your credit might be.

The reality is that the lending industry is systemically destroying credit through stupid desperation. Yet their only escape is through the same financially healthy customers they are assaulting.

That is why my equity take back method of managing the first step of a foreclosure is so powerful. It allows the debtor to rebuild credit and security quickly enough to bail out even the bank at the end of the day.

Today we have a choice. Continue with a decade of stagnation by not repairing the credit system as occurred in Japan as repairing it now. Money to the lenders only allows them to get their ratios back to normal, while money to the borrowers in the form of my prescribed equity take backs turns those same borrowers into credit worthy customers overnight.

http://www.cafehayek.com/hayek/2009/05/for-the-record.html

Paul Krugman notes that nominal wages are falling for some workers. He worries that this is akin to a paradox of thrift where lower wages lead to less spending and the economy struggles and so on. He then notes that the economy seems to be doing better. BUT:

But the unemployment rate is almost certainly still rising. And all signs point to a terrible job market for many months if not years to come — which is a recipe for continuing wage cuts, which will in turn keep the economy weak.

To break that vicious circle, we basically need more: more stimulus, more decisive action on the banks, more job creation.

Credit where credit is due: President Obama and his economic advisers seem to have steered the economy away from the abyss. But the risk that America will turn into Japan — that we’ll face years of deflation and stagnation — seems, if anything, to be rising.

I want to focus on the first two lines of the last paragraph in this excerpt:

Credit where credit is due: President Obama and his economic advisers seem to have steered the economy away from the abyss.

Tell your children (so that when they grow up and hear this ridiculous story repeated) that the President and his advisers don't steer the economy and that the so-called stimulus package has barely gotten started at the time that the most recent Nobel Laureate was ready to give the administration credit for saving us from the abyss.

I would add that it's a little too early to be optimistic about the future. I hope it's true. But if it is, what does Krugman have in mind when he says, "steering?" What policy can he point to that is keeping us from the abyss?

BTW, if you go here and click on the frame number 3 you'll see a chart of funds allocated and spent by the federal government in the "stimulus" package. As of the end of April the total spent was still under $100 billion of the $787 billion to be spent. Is this what has kept us from the abyss? Or maybe he means the masterful steering of the financial sector. I'd sure like to know.

Outlaw the Shadow Banking System

I am hesitant to discuss this subject because I know that only a very few people have a sophisticated understanding of the background and history of the global banking system that is now so broken.

In fact, in the absence of a proper popular history we have instead a slew of alternate badly flawed explanations supported by enthusiastic adherents.

We get here though that the two major political forces that are cast in the center of this maelstrom are now working toward clawing back some semblance of control over this bloated monster.

Let us get it right. The offshore monster did not create the subprime disaster, but their hunger for product created a ready market for poorly engineered financial garbage. If they were not feeding, Wall Street would never have had a market for securitized crap and everyone would have continued to make an honest living doing what they do best.

The money was so free and easy, that they went out and financed the fence posts. Yes, they all knew better, and they knew that they were damaging their countries’ credit system like they were some South American dictator, and most took early retirement just as fast as they could get away and left the pending train wreck to the rookies. And yes, it is appropriate to charge them with treason.

The result is that each country has to restructure their banking system to bail themselves out. What are going to be saved are the domestic banking systems. The rest is hanging and very likely massive offshore failures are going to sweep away billions in private wealth. Perhaps as it should.

The two major financial powers are now getting ready to clean up the offshore banking game with all the power of the state at their control.

Imagine you are a personal banker in the Bahamas or say Switzerland with a largish portfolio of private investors who have placed money with you for decades for shady reasons.

Imagine you are invited for coffee with a fine gentleman who informs you that he is a CIA operative and that he has some instructions for you and he really does not care what laws you think are protecting you. After all your clients believe in the law of the jungle, so why should not you?

Suppose those instructions include a complete disgorgement of client data. What recourse do you have? Or your clients for that matter.

This game has been protected because the clients could influence the game in their home countries to prevent any form of pursuit. That may have just ended.

We are going to now get a global financial regulatory system that will generally work and the USA will not be standing aloof as has been their want for all the usual reasons. The complete failure of the system is a direct result of American political folly, and as mentioned before, the blame is shared. In fact it is offensive to see politicians stand up and point fingers across the aisle when a simple read of their record can easily make them the greater culprit. Few today look good.

"Outlaw the Shadow Banking System!"

Guess Who Said It?

By Matthias Chang

URL of this article:

www.globalresearch.ca/index.php?context=va&aid=12584

Global Research, March 7, 2009
FutureFastForward.com

When I read the remarks of President Obama and Prime Minister Gordon Brown after their meeting at the Oval Office on March 3, 2009 and the speech of the latter to the Joint Session of Congress on March 4, 2009, I realized that a growing antagonism has emerged between certain factions of the ruling elites in the City of London and in Washington DC.

The first warning of the acute differences was sounded by President Obama himself and it was most surprising that the mass media paid hardly attention to it. In his weekly address on February 28, 2009, President Obama said:

“I realize that passing this budget won't be easy. Because it represents real and dramatic change, it also represents a threat to the status quo in Washington. I know that the insurance industry won't like the idea that they'll have to bid competitively to continue offering Medicare coverage, but that's how we'll help preserve and protect Medicare and lower health care costs for American families. I know that banks and big student lenders won't like the idea that we're ending their huge taxpayer subsidies, but that's how we'll save taxpayers nearly $50 billion and make college more affordable. I know that oil and gas companies won't like us ending nearly $30 billion in tax breaks, but that's how we'll help fund a renewable energy economy that will create new jobs and new industries. In other words, I know these steps won't sit well with the special interests and lobbyists who are invested in the old way of doing business, and I know they're gearing up for a fight as we speak. My message to them is this:

“So am I.”

Read the underlined words again.

It is clear something is definitely amiss within the ruling elites and President Obama has thrown the gauntlet to his adversaries. The skeptics may say that we should not read too much into this above quoted paragraph, as it could be mere spin to rally the troops in times of crisis. Time will tell.

I take the view that it is inevitable that the members of the ruling elites would go for each other's throats because those who were given the charge to ensure that the money-machine keeps running have screwed up big time. Someone must answer for the fiasco.

The Blame Game

It would be naïve to assume that the status quo would remain, when the Global Trillion Dollar Casino is for all intents and purposes broken down beyond repair.

Confirmation that the blame game has started in earnest can be found in the aforesaid remarks of President Obama and Prime Minister Gordon Brown on March 3, 2009 given after their meeting at the Oval Office and Brown's speech to Congress on March 4, 2009.

Let us come back to the issue of the money-lenders. For some strange reason, many people are put off by the term “money-lenders” but are ever so comfortable with bankers.

But are not bankers, money-lenders?

In fact I would say that money-lenders are more honourable than your high street bankers, as they can only rob you in the millions. The global bankers, they rape and plunder in the trillions!

Is it any wonder that Gordon Brown and President Obama, the political representatives of the Power Elites have decided that it is about time that these financial harlots are to be brought under control before they wreck the entire global power structure?

Let us have no illusions about Obama and Gordon Brown. They are going after these financial harlots not because they want to protect us from these criminals, but because for too long the political faction had to play second fiddle to the financial faction in the overall scheme of global one world government.

Until lately, money power triumphed over political power. However, when the entire financial system broke into pieces, it was time to settle scores!
Read for yourself:

Prime Minister Gordon Brown's remarks at the White House, March 3, 2009

“Well, there's got to be deep regulatory change. We've just been talking, Barack and I, about the need for proper supervision of shadow banking systems, of areas where there was bank practices that were unacceptable, where remuneration policies got out of hand and weren't based on long-term success, but on short-term deals. And these are the changes that we've already announced that we are going to make.”

“We've had a global banking failure, and it's happened in every part of the world. It's almost like a power cut that went right across the financial system. And we have got to rebuild that financial system. We've got to isolate the bad assets.”

“You don't want shadow banking systems. You don't want regulatory tax havens. So we've got to act as a world together to deal with that. And that's one of the things we'll be talking about in April in London.”

President Obama's response at the White House, March 3, 2009

“Now, having said that, the banking system has been dealt a heavy blow. It has to do with many of the things that Prime Minister Brown alluded to: lax regulation, massive over-leverage, huge systemic risks taken by unregulated institutions, as well as regulated institutions. And so there are a lot of losses that are working their way through the system. And it's not surprising that the market is hurting as a consequence. In fact, I think what we're seeing is that as people absorb the depths of the problem that existed in the banking system, as well as the international ramifications of it, that there's going to be a natural reaction.”

“We are cleaning up that mess. It's going to be sort of full of fits and starts in terms of getting the mess cleaned up, but it's going to get cleaned up.”

Prime Minister Gordon Brown's Speech to Congress, March 4, 2009

“And we need to understand what went wrong in this crisis, that the very financial instruments that were designed to diversify risk across the banking system instead spread contagion across the globe. And today's financial institutions are so interwoven that a bad bank anywhere is a threat to good banks everywhere.”

“And you are also restructuring your banks. So are we. But how much safer would everybody's savings be if the whole world finally came together to outlaw shadow banking systems and offshore tax havens?”

Blink and read again the underlined words. You have just read that Prime Minister Gordon Brown has made the call to “outlaw the shadow banking system and offshore tax havens!”

Wow!

Even if you are a skeptic and holds the view that the quotes are mere spin to delude the people, you cannot deny that Prime Minister Brown has let the genie out of the bottle!

Whether there are any follow through actions by President Obama and Prime Minister Brown, the global citizens must take action independently, if they want to save their children, and their children's children from decades of impoverishment and extreme hardship.

The most powerful leader of the Western world and his side-kick has openly and unreservedly acknowledged that we are having a global financial melt-down. And that the cause for this catastrophe is the shadow banking system!

There is now an open warfare between the political factions and the financial factions of the global power elites. This will be ugly. And as President Obama warned, “they are gearing for a fight ” He has also responded to the challenge: “So am I.”

Given the above scenario, we must first take out the financial elites, and thereafter the political faction, failing which we will all plunge into the black hole of financial Armageddon!Matthias Chang is a prominent barrister, author and analyst of the New World Order based in Malaysia.
His website: www.FutureFastForward.com

Capitalism and Crisis

This article deserves a thoughtful response and perhaps even a call to action. At the present all eyes are on Obama as he struggles with the prescribed remedies hoping that it will do some good somewhere. Then he will try to preach a wait and see approach while we all pray that the economic ship can turn around. In the meantime he has the coin to run around playing Peter at the dyke.

The sharp lowering of mortgage interest rates will allow the housing industry to refinance over the next four years but it will still leave a lot of damaged credit that will take the four years to restore. It should work itself out. I have suggested a way to make it faster and more furious with an excellent chance to be very profitable to the government. It is too radical to be tried for now.

This still leaves massive amounts of stranded money all over the globe as everyone retrenches their economies. Europe has not finished their nightmare and the institutional systems are likely not sufficient to fix Eastern Europe let alone Europe in general. They barely understand how bad the financial system is.

There is wreckage elsewhere but most were a lot better insulated than recognized. What is happening though is every country is first internalizing fresh demand to get their own system back on the tracks.

In a way there was a massive balloon of funny money created by our wall street idiots that was never able to land anywhere for the past several years into real goods and was used to support an ever enlarging credit Ponzi scheme. Had any of it actually so landed we would have had massive inflation to contend with. Instead it was kept up in the air until the music stopped.

Since the bubble has burst, all this credit and coin has abruptly disappeared, and we are now living through a very painful readjustment where we reinstate the cost structures of 2000.

A result of this scheme is that governments actually thought that they had tax money to spend over the past several years. Now they have to print money to replace that money that was lost and spent in the past several years sinking the banks. Again the bail out money is merely replacing capital lost and already in circulation. You got the benefit of all that money. You are been taxed to pay it back.

That is where we are at. So what about the question that this article poses? It is obvious that something is wrong. It was not wrong in terms of its thirty years of expansion. No one wants to end that part of the movie.

In fact Reagan bequeathed a much superior system to what went before and it is easy to locate the diddling that finally took it of the tracks.

The fundamental problem with our economic system is that while it harnesses greed properly and allows it to naturally enrich us all and that is good, our institutions are open to been gamed. More clearly, we are all at the poker table, and the game works because there are fifty two cards, four suites and thirteen separate card types. This is immutable.

In our current financial system, we have never settled on a final design for the deck of cards and this has led to every market enthusiasm converted into fraud.

Let me put it another way. How many lawyers do you need to run a poker table?

They tried to lock the cards down in the thirties but did not really appreciate what they were doing. That rule book was thrashed by the end of Clinton’s presidency and we had a B.Com type minding the store since who could not be expected to grasp the gravity of what was transpiring. We can not even blame him because the subtlety of what was happening was beyond only a few.

If the will exists to produce a superior financial system, and I question that, then we begin by constructing a lawyer free rule book. I think Napoleon made a good stab at it and other comparables might help.

Obviously I have plenty more to say about all this but we will leave this for now. I am beginning to appreciate that I actually had an economic research lab at my beck and call for ten years of my life. It is possible for me to actually propose valid changes and understand the underlying foundations.

I will leave you with this thought. Greed is uncontrollable. It can only be regulated through immutable rules. Regulation and greed cannot be combined. A lawyer is paid to combine them. Uncontrolled regulation and greed is treason.

And how in hell can Obama be up to any of this?

The Economic Crisis Isn't All Bad; It's a Chance for Us and Obama to Reimagine How We Live Our Lives

By Benjamin R. Barber, The Nation. Posted January 28, 2009.

Capitalism is on its knees and now we have a chance to create higher ideals beyond career climbing and mindless consumerism.

As America, recession mired, enters the hope-inspired age of Barack Obama, a silent but fateful struggle for the soul of capitalism is being waged. Can the market system finally be made to serve us? Or will we continue to serve it? George W. Bush argued that the crisis is "not a failure of the free-market system, and the answer is not to try to reinvent that system." But while it is going too far to declare that capitalism is dead, George Soros is right when he says that "there is something fundamentally wrong" with the market theory that stands behind the global economy, a "defect" that is "inherent in the system."

The issue is not the death of capitalism but what kind of capitalism -- standing in which relationship to culture, to democracy and to life? President Obama's Rubinite economic team seems designed to reassure rather than innovate, its members set to fix what they broke. But even if they succeed, will they do more than merely restore capitalism to the status quo ante, resurrecting all the defects that led to the current debacle?
Being economists, even the progressive critics missing from the Obama economic team continue to think inside the economic box. Yes, bankers and politicians agree that there must be more regulatory oversight, a greater government equity stake in bailouts and some considerable warming of the frozen credit pump. A very large stimulus package with a welcome focus on the environment, alternative energy, infrastructure and job creation is in the offing -- a good thing indeed.

But it is hard to discern any movement toward a wholesale rethinking of the dominant role of the market in our society. No one is questioning the impulse to rehabilitate the consumer market as the driver of American commerce. Or to keep commerce as the foundation of American public and private life, even at the cost of rendering other cherished American values -- like pluralism, the life of the spirit and the pursuit of (nonmaterial) happiness -- subordinate to it.

Economists and politicians across the spectrum continue to insist that the challenge lies in revving up inert demand. For in an economy that has become dependent on consumerism to the tune of 70 percent of GDP, shoppers who won't shop and consumers who don't consume spell disaster. Yet it is precisely in confronting the paradox of consumerism that the struggle for capitalism's soul needs to be waged.

The crisis in global capitalism demands a revolution in spirit -- fundamental change in attitudes and behavior. Reform cannot merely rush parents and kids back into the mall; it must encourage them to shop less, to save rather than spend. If there's to be a federal lottery, the Obama administration should use it as an incentive for saving, a free ticket, say, for every ten bucks banked. Penalize carbon use by taxing gas so that it's $4 a gallon regardless of market price, curbing gas guzzlers and promoting efficient public transportation. And how about policies that give producers incentives to target real needs, even where the needy are short of cash, rather than to manufacture faux needs for the wealthy just because they've got the cash?

Or better yet, take in earnest that insincere MasterCard ad, and consider all the things money can't buy (most things!). Change some habits and restore the balance between body and spirit. Refashion the cultural ethos by taking culture seriously. The arts play a large role in fostering the noncommercial aspects of society. It's time, finally, for a cabinet-level arts and humanities post to foster creative thinking within government as well as throughout the country. Time for serious federal arts education money to teach the young the joys and powers of imagination, creativity and culture, as doers and spectators rather than consumers.

Recreation and physical activity are also public goods not dependent on private purchase. They call for parks and biking paths rather than multiplexes and malls. Speaking of the multiplex, why has the new communications technology been left almost entirely to commerce? Its architecture is democratic, and its networking potential is deeply social. Yet for the most part, it has been put to private and commercial rather than educational and cultural uses. Its democratic and artistic possibilities need to be elaborated, even subsidized.

Of course, much of what is required cannot be leveraged by government policy alone, or by a stimulus package and new regulations over the securities and banking markets. A cultural ethos is at stake. For far too long our primary institutions -- from education and advertising to politics and entertainment -- have prized consumerism above everything else, even at the price of infantilizing society. If spirit is to have a chance, they must join the revolution.

The costs of such a transformation will undoubtedly be steep, since they are likely to prolong the recession. Capitalists may be required to take risks they prefer to socialize (i.e., make taxpayers shoulder them). They will be asked to create new markets rather than exploit and abuse old ones; to simultaneously jump-start investments and inventions that create jobs and help generate those new consumers who will buy the useful and necessary things capitalists make once they start addressing real needs (try purifying tainted water in the Third World rather than bottling tap water in the First!)

The good news is, people are already spending less, earning before buying (using those old-fashioned layaway plans) and feeling relieved at the shopping quasi-moratorium. Suddenly debit cards are the preferred plastic. Parental "gatekeepers" are rebelling against marketers who treat their 4-year-olds as consumers-to-be. Adults are questioning brand identities and the infantilization of their tastes. They are out in front of the politicians, who still seem addicted to credit as a cure-all for the economic crisis.

And Barack Obama? We elected a president committed in principle to deep change. Rather than try to back out of the mess we are in, why not find a way forward? What if Obama committed the United States to reducing consumer spending from 70 percent of GDP to 50 percent over the next ten years, bringing it to roughly where Germany's GDP is today? The Germans have a commensurate standard of living and considerably greater equality. Imagine all the things we could do without having to shop: play and pray, create and relate, read and walk, listen and procreate -- make art, make friends, make homes, make love.

Sound too soft? Too idealistic? If we are to survive the collapse of the unsustainable consumer capitalism that has possessed our body politic over the past three decades, idealism must become the new realism. For if the contest is between the material body defined by solipsistic acquisitiveness and the human spirit defined by imagination and compassion, then a purely technical economic response is what will be too soft, promising little more than a restoration of that shopaholic hell of hyper-consumerism that occasioned the current disaster.

There are epic moments in history, often catalyzed by catastrophe, that permit fundamental cultural change. The Civil War not only brought an end to slavery but knit together a wounded country, opened the West and spurred capitalist investment in ways that created the modern American nation. The Great Depression legitimized a radical expansion of democratic interventionism; but more important, it made Americans aware of how crucial equality and social justice (buried in capitalism's first century) were to America's survival as a democracy.

Today we find ourselves in another such seminal moment. Will we use it to rethink the meaning of capitalism and the relationship between our material bodies and the spirited psyches they are meant to serve? Between the commodity fetishism and single-minded commercialism that we have allowed to dominate us, and the pluralism, heterogeneity and spiritedness that constitute our professed national character?

President Obama certainly inspired many young people to think beyond themselves -- beyond careerism and mindless consumerism. But our tendency is to leave the "higher" things to high-minded rhetoric and devote policy to the material. Getting people to understand that happiness cannot be bought, and that consumerism wears out not only the sole and the wallet but the will and the soul -- that capitalism cannot survive long-term on credit and consumerism -- demands programs and people, not just talk.

The convergence of Obama's election and the collapse of the global credit economy marks a moment when radical change is possible. But we will need the new president's leadership to turn the economic disaster into a cultural and democratic opportunity: to make service as important as selfishness (what about a national service program, universal and mandatory, linked to education?); to render community no less valid than individualism (lost social capital can be re-created through support for civil society); to make the needs of the spirit as worthy of respect as those of the body (assist the arts and don't chase religion out of the public square just because we want it out of City Hall); to make equality as important as individual opportunity ("equal opportunity" talk has become a way to avoid confronting deep structural inequality); to make prudence and modesty values no less commendable than speculation and hubris (saving is not just good economic policy; it's a beneficent frame of mind). Such values are neither conservative nor liberal but are at once cosmopolitan and deeply American. Their restoration could inaugurate a quiet revolution.

The struggle for the soul of capitalism is, then, a struggle between the nation's economic body and its civic soul: a struggle to put capitalism in its proper place, where it serves our nature and needs rather than manipulating and fabricating whims and wants. Saving capitalism means bringing it into harmony with spirit -- with prudence, pluralism and those "things of the public" (res publica) that define our civic souls. A revolution of the spirit.

Is the new president up to it? Are we?

Jim Kunsler writes on Hope and Fear

This article by Jim Kunsler is a very good summary of all the bad news that we face on the economic front. It is indescribably ugly, but there is nothing here that I have not already said. Jim’s error, if it may be called that, is that he lacks faith in our capability to replace oil as our energy source at a reasonable price. This blog has been an investigation of our options and strategies for side stepping this massive oil industry contraction.

We have been treated to the first sharp oil shock and that popped the sagging credit balloon. The second shock is inevitable although it can be postponed possibly until the first major field fails. We are past the peak and are waiting for the rapid decline that is inevitable.

Until we are able to begin to build out oil’s replacement, credit expansion must be hesitant. The reason is simple. When you evaluate a loan, you will now factor in the impact of $145 oil.

When you lend a million dollars to the local pig farm, you ask how the loan is going to fare if oil is $145. We already know the answer. Everyone is trying to recapture loses while oil is presently around $40.

Read my lips. The party has been halted for a time out to allow us to get our energy act together.

If the solution is EEStor based electric cars, then Kunsler’s concerns about suburbia are misplaced. If the solution is truly solar, then there is a massive job creation program cutting loose that must surely employ several millions directly in the build out. The energy crisis is so large that every technology able to meet a price point equivalent of $100 per barrel will be riding on government guarantees until the problem is fully solved.

Oil as a solution is contracting now and we must run full out just to stay even. July of 2008 was the first shot in that war for modern economic survival and it rang as loud as the shot at fort Sumter.

Obama must organize a response to this threat as soon as possible. The answers are there in my blog. But we must lead the charge because we are on the oil horse and it is beginning to buck. We have only two choices and the worst by far is to let nature run its course. You did not like round one. The next round will be a lock on $100 oil and ferocious rationing been screamed for. All the cars will be forcibly parked. It is coming anyway because we cannot add fresh supply fast enough. Then the real declines will hit.

Freeing up all the alternatives with price guarantees is a good start. Providing guarantees for a national power corridor is necessary. The moment electric cars are really feasible the demand for power on demand will sky rocket. That could be as early as next year if EEStor is right.

The big megawatts are just a matter of building plants already ready to be built. Wind, solar and geothermal are surely the most stable solutions with no fuel pricing vulnerabilities whatsoever. All these can be financed with debt instruments that will get paid of.


This article by jim kunsler
http://jameshowardkunstler.typepad.com/clusterfuck_nation/2009/01/hope-and-fear.html
Hope and Fear
Tomorrow at noon, Barack Obama steps into the shoes of Lincoln, FDR, Millard Fillmore and forty other predecessors -- this time as the wished-for Mr. Fix-it of a nation run into a ditch. Surely over the months of transition, someone with a clear head and a fact-laden portfolio has clued-in the new President about the reality-based state-of-the-Union -- as opposed, say, to the Las Vegas version, where Santa Clause presides over a whoredom of something-for-nothing economics, and all behaviors are equally okay, and consequence has been sliced-and-diced out of the game. . . where, in the immortal words of Milan Kundera, anything goes and nothing matters.

Mr. Obama deserves credit for a lot of things, but perhaps most amazingly his ability to see "hope" in a public so demoralized by their own bad choices that the USA scene has devolved to a non-stop Special Olympics of everyday life, where absolutely everybody is debilitated, deluded, challenged, or needs a leg up, or an extra buck, or a pallet on the floor, or a gastric bypass, or a week in detox, or a head-start, or a fourth strike, or a $150-billion bailout. There's a lot of raw material from sea to shining sea, admittedly, but how do you re-shape it into a population guided by a sense of earnest purpose, with reality-based expectations, with habits of delayed gratification and impulse control, and a sense of their own history? That will be quite a trick. Many of us -- myself included -- will be pulling for Barack. Maybe the power of his rhetoric and his sheer buff physical presence can whip this republic of overfed clowns into shape.

He inherits a government of superficially gleaming marble edifices -- all gloriously on view tomorrow -- but full of broken machinery within, infested with weevils, termites, and rats. The USA is functionally bankrupt. We have no money. The pixel "money" being emailed over to the insolvent banks has no basis in reality beyond the quiver in Ben Bernanke's voice as he announces each new injection. Yet all reports so far indicate that President Obama is bent on continuing the process one way or another.

Mr. Obama's first task taking stage in the lonely Oval Office should be to get right with his own credo of "change," meaning he'll have to persuade the broad American public that the "change" required to salvage this society runs much deeper, colder, and thicker than they'd imagine in their initial transports over hallelujah-Bush-is-Gone. Many of the familiar touchstones of the recent American experience have got to go.

Say goodbye to the "consumer society." We're done with that. No more fast money and no more credit. The next stop is "yard-sale nation," in which all the plastic crapola accumulated over the past fifty years is sorted out for residual value and, if still working, sold for a fraction of its original sticker price. This includes everything from Humvees to Hello Kitty charm bracelets.

It will be a very salutary thing if we stop even referring to ourselves as "consumers." This degrading moniker, used for decades unthinkingly by everyone from The New York Times Nobel Prize pundits to the Econ 101 section men of the land-grant diploma mills has been such a drag on our collective development that it has extinguished the last latent flickers of duty, obligation, and responsibility for the greater good in a republic of broken communities shattered by WalMarts.

The government will not have to do a thing to bring down the chain-stores. History and inertia is already on that case, with the easy credit racket terminated and new frictions arising over global trade, and even Peak Oil waiting to work its hoodoo behind the scrim of deceptively temporarily low pump prices. The larger question for President Obama is: how can we collectively promote the reconstruction of Main Street, including all the fine-grained layers of retail and wholesale trade. High tech "solutions" are not likely to avail in this.

In fact, techno-grandiosity and techno-triumphalism must be be sedulously monitored and guarded-against. They jointly amount to the great mass psychosis of our time and culture. This array of traps -- from proposed flying cars to "renewable" motor fuels -- is the ultimate Faustian "bargain." It will be at the heart of any campaign to sustain the unsustainable, sucking us ever more deeply into the diminishing returns of over-investments in complexity. Hence, the last thing this nation needs now is a stimulus plan aimed at the development of non-gasoline-powered automobiles -- married with extensive rehabilitation of the highway system. What I incessantly refer to as the Happy Motoring fiesta is drawing to a close as we have known it, whether we like it or not. Cars will be around for a while, of course, but as an increasingly elite activity. The owners of cars will be increasingly beset by grievance and resentment on the part of those foreclosed from the Happy Motoring life -- and it could easily degenerate to vandalism and violence, since the "right" to endless motoring was surreptitiously made an entitlement somewhere around 1957.

The "change" we face in agriculture dwarfs even the death throes of Happy Motoring (and is not unrelated to it either). A lot of people are likely to starve in America if we don't get our act together pronto in terms of how we produce the food we eat. Petro-agribusiness faces a set of disturbances that are certain to induce food shortages. Again, the Peak Oil specter looms in the background, for soil "inputs" and diesel power to run that system. But all of a sudden even that problem appears a lesser danger than the gross failure of capital finance now underway -- and petro-agriculture's chief external input is credit. Credit may be in extremely short supply this year, and hence crops may be in short supply as we turn the corner into spring and summer. Just as in the case of WalMart versus Main Street, the reform of farming in America is one of those "changes" much larger than most of us imagine. I'd go so far to say that a large proportion of young people now in college will find themselves not working in office cubicles, but in some way or other in farming or the "value-added" activities connected to it.

I don't see how America can confront the "change" represented by the stark fact that suburbia-is-toast. It is the sorest spot of all in the corpus of a culture beset by disease and debility. The salient manifestation of suburbia's demise is the remorseless drop of housing values in the places most representative of that development pattern. The worst thing the Obama team could do about this would be to attempt to prevent the fall of inflated house prices. Their real value needs to be clearly established before a picture emerges of which places have a plausible future, and which places are destined to be mere ruins or salvage yards.

Americans will have to live somewhere, of course, but the terrain of North America faces a very comprehensive reformation. The biggest cities will contract; the small cities and small towns will be reactivated, the agricultural landscape will be inhabited differently, and the suburbs will undergo an agonizing decades-long work-out of bad debt and true asset re-valuation. Since the loss of so much vested "wealth" is implied by the crash of suburbia, this may be a source of revolutionary political violence moving deeper into the Obama administration.

There's been plenty of buzz in the blogosphere about the imminent failure of the US "social safety net," including especially the social security program. Retirees are the biggest block of voters. They're not liable to foment riots -- that is best left to the youthful high-testosterone cohort -- but the older folks -- with Baby Boomers now coming aboard -- could be so distressed by the loss of their presumed entitlements that they will elect any maniac promising to bring back something that looked like the 1980s. We haven't begun to hear their war cries, and I hope they do not beat a path straight into some sort of crypto corporate fascism -- as, finally, every last failing scrap of American life is nationalized.

Some natural processes hide in the thickets ahead. A hyper-inflation could take this country in any weird and unappetizing direction, from scapegoating and persecution to a new kind of corporate fascism. But I'm inclined to see our tribulations governed more by weakness in high places than by real power. In a world of declining capital and depleting energy resources, the key to any successful venture will be smaller scale. I'm not convinced that any emergency could make the US government more effective at getting anything done. Our hopes really ought to be vested locally, since that is where the most effective action is likely to be in the years just ahead.

It will be stirring to watch Barack Obama's inauguration, and all the hoopla and balls, and the radiant children, and the exemplary First Lady dancing with the First Partner. Euphoria is a legitimate part of the human condition, though we know it soon passes into the heavy lifting of real life. There are many Americans of good will who would like to see the meaning of real "change" clearly articulated in a way that comports with reality, not just "dreams" and wishes. We'll hear a lot about dreams this week, anyway, of course, but then reality will set in and the heavy lifting will commence. Many Americans of good will also stand ready to face reality, to roll up our sleeves, ditch the video games and the Nascar and the microwaved cheese treats, and the internet porn and all the other noxious, narcolepsy-inducing distractions of our time, and put our shoulders to the wheel to haul this nation into a plausible future. For the moment: a rousing cry of "Good Luck!" To President Obama from this little outpost of Clusterfuck Nation