Sunday, February 28, 2010

You're OUTTA Here Man!

Here's that staged vid of the spoiled kid going freakshow; I thought I'd post this because it makes me think that this is how Jamie Dimon was as a kid.

I have to then follow that up with this by Mike Epps about these kinds of kids. Too funny.

Socialist Jamie's Welfare Brand of Genius

Evidently Jamie boy's added prognosticator to his res now, right after the last entry for 2008: "Welfare Recipient of the Year," and "Pro Socialist Co-Winner with Lloyd Blankfein." Courtesy of the Telegraph, he spewed that "American investors should be more worried about the risk of default of the state of California than of Greece's current debt woes."

First, we should be worried about welfare jerkoffs like YOU Jamie, thieving in our own backyards.

Second, I called Cali way before you ever thought of using it as deflection. For instance see point #8 here, back in October '09.

Third, while the mass media does their usual asleep at the wheel thing, citizen journalists are way in front of the EM08 curve. Don't believe me? Here's one of my recommended EM08 bloggers, "Mish" (see sidebar). He said this over 3 years ago.

Is California Going Bankrupt?
Nov 20th, 2006 | By Michael Shedlock | Category: Macro Economics

History is about to repeat in California as the “state’s cash flood may be receding”:

“It’s familiar: A handful of Californians make a killing on investments, and their tax payments send state revenues soaring. Lawmakers go on a spending spree, without a plan for paying the bills when fortunes turn.

“That was the late 1990s, when the dot-com boom made the state flush, but the gains proved fleeting, and California came perilously close to running out of cash.

“Now, as Gov. Arnold Schwarzenegger prepares a landmark program to expand health care coverage to millions of uninsured residents, economists say the state may not have the funds to pay for it. Although tax receipts rose this year, they say, California is once again on budget quicksand.


“‘I’m at a loss to see how they are going to balance this budget,’ said Stephen Levy, director of the Center for the Continuing Study of the California Economy in Palo Alto. ‘The state got bailed out last time around by a surprise revenue surge. That is unlikely to happen again.’

“The expanded programs in Schwarzenegger’s election-year budget were funded largely by Silicon Valley millionaires — capital gains taxes on people who cashed in Google stock, for example, accounted for nearly $500 million in revenue, several experts said — and by the bubble in the housing market that began to deflate after tax receipts that fueled this year’s spending were tallied.

“‘These surges don’t last forever,’ said Ted Gibson, a former state economist. ‘At some point…that revenue stream will either diminish or completely dry up.’

“The governor Tuesday brushed aside warnings that state coffers could soon start to shrink. Referring to the $37-billion public-works borrowing package voters approved last week, Schwarzenegger said: ‘There will be so much construction activities going on that where the private sector will fall off, the public sector will pick up.’

“‘With our infrastructure bonds, we will again stimulate the economy,’ he said…

“‘We’re going to have a big revenue problem,’ said Christopher Thornberg, a partner at Beacon Economics in Los Angeles. ‘It is going to be a mess and Schwarzenegger in a year is going to wonder why he wanted to be reelected…Sacramento is not going to have the cash to pay for things it wants’…

“In 1965, personal income taxes — one of the most volatile sources of cash for the state — accounted for less than a fifth of the state’s revenues. Now they make up nearly half…

“Schwarzenegger came up with a more dramatic proposal: a cap on state spending that would force Sacramento to sock revenue windfalls away in a rainy-day fund. But after voters rejected his ‘Live Within Our Means Act’ in last year’s special election, the governor changed course, supporting big spending increases for government programs.

“Democrats, too, dropped their call for changes in the tax code as state coffers swelled and more money was on the table — at least temporarily — to fund their policy priorities.

“Now, analysts say, the inaction may come back to haunt the state. The influx of cash ‘we’ve seen in the last couple of years could go in the other direction,’ said Brad Williams, an economist in Hill’s office. ‘It is just a question of when.’”

I am stunned. I should not be, but I am. How can anyone possibly think, “With our infrastructure bonds, we will again stimulate the economy” ? The Arnold sounds like he is bragging that California’s infrastructure is in bad shape. “There will be so much construction activities going on that where the private sector will fall off, the public sector will pick up.”

Perhaps other states should wreck their roads and demolish their hospitals just so they too can be lucky enough to get voters to pass bond issues to stimulate the economy. Dear Arnold, write this down on the blackboard and read it until you understand: Unfunded public sector spending is exactly why this country is in the mess it is in. We have wasted well over half a trillion dollars in Iraq, and exactly what did that stimulus buy us?

If floating bonds will stimulate the economy enough to pay for themselves, why not float a trillion dollars worth of them? If printing presses were the key to prosperity, Zimbabwe could easily be the richest nation in the world.

NCPA

The National Center for Policy Analysis (NCPA) is writing about “California’s Mega-Bonds”:

“Tired of exasperating traffic jams, aging schools, and inadequate affordable housing, Californians have launched a new era of public works construction. California voters agreed Tuesday to finance the program by issuing $37.3 billion in bonds — an amount greater than the annual spending of any other state.

“As a growing federal budget deficit has eroded financial aid for highways and other projects, debates have simmered in recent years in state capitals about how to pay for them.

“Critics say California voters made a mistake:

*
The borrowing will top $73 billion once the bonds are paid off with interest in 30 years, thrusting the state deeper into debt just as it is rebounding from the dot-com bust
*
That could lead to cuts in funding for social services and other programs, they warn.

“Supporters — most prominently, Gov. Arnold Schwarzenegger — argue:

*
The benefits of highway and public transit improvements, better-equipped schools, and reduced threats of flooding will be worth the cost
*
That is especially true, they say, in a state predicted to swell by the population of Ohio over the next 10 years.

“The four propositions will spend $19.9 billion on roads and public transit, $10.4 billion on school construction, $4.1 billion on levees and other flood-control projects, and $2.9 billion on affordable housing.”

The California Model

The Boston Herald dove off the deep end by proposing, “California’s $37.3 Billion Public Works Rebuilding Program Could Be Model for Other States”:

“California voters agreed Tuesday to finance the program by issuing $37.3 billion in bonds — an amount greater than the annual spending of any other state.

“‘Voters said they are willing to bear the costs and are unwilling to wait for the feds to get their act together,’ said Everett Ehrlich of the Center for Strategic and International Studies, a Washington think tank. ‘That California would see it in its best interest to go it alone and make such a sizable new investment in its future is in many ways new and different’…

“Allan Zaremberg, president of the California Chamber of Commerce, said passage of the mega bonds will become a catalyst for discussions nationwide about funding infrastructure.

“‘This is a real victory for people who have the economy in mind,’ Zaremberg said. ‘Gridlock costs money. It’s really important to maintain our infrastructure.’”

For starters, voters most assuredly are NOT willing to bear the costs. Did Californians vote to live within their means? No, Californians rejected Proposition 76: The California Live Within Our Means Act. Did Californians vote for any tax hikes? Once again, the answer is no. So where is the money going to come from? Future generations? Spending that pays for itself? A hope and a wing and a prayer? As for this being a “real victory for people,” I would say that Zaremberg’s ideas are downright dangerous.

California may have a model, all right, but that model is the road to ruin and bankruptcy.

Housing

The Desert Sun is writing, “Housing market drag on state until 2008″:

“The downturn in the housing industry will continue to depress the state’s economy for most of next year before stabilizing in 2008, the legislature’s top budget analyst predicted Wednesday.

“Legislative budget analyst Elizabeth Hill forecast that residential construction will fall by 4.4% in 2006 and by an additional 13% in 2007.

“Then the analyst said it should stabilize with about 175,000 permits issued annually through 2012.

“‘I think the real story in terms of California’s economy as well as the nation is what is happening in the real estate industry,’ Hill said.

“She noted that the real estate industry, which includes developers, contractors, real estate brokers, title companies, and financial institutions, make up 15-20% of the state’s private sector economy.

“The slowdown in this industry was the largest single factor in a sharp decline in personal income growth, resulting in a drop in withholding tax payments from over 10% in the first half of 2006 to less than 5% in the third quarter, Hill reported.

“‘California has been hard hit by what has happened in the overall real estate sector,’ she said. ‘That is the main reason we see the softness in California’s economy through 2007 and the rebound in 2008′…

“Overall, Hill projected the state budget would end 2006-07 with a $3 billion reserve, but then run short by about $5 billion in each of the following two years and by $1.2 billion annually through 2012 without cuts, tax or fee increases, or borrowing…

“The current real estate slowdown also could affect state and local governments through what Hill called a ‘more subdued’ growth in property tax revenues.

“The recent real estate boom led to a 35% increase in property tax revenue between 2001-02 and 2006-07 after adjusting for inflation.

“Hill is forecasting that the annual growth in property taxes will drop from 12% in 2006-07 to below 6% in 2009-10, and then rebound modestly.”

The Landing

Once again, we have a prediction that seems to amount to a soft landing. The landing will be anything but soft. In fact, once the downdraft in California gets going, people may be wondering if there will be a landing at all.

During the boom times, no one pays down debt or saves for the future. That is because booms are artificial by nature. We had a boom based on easy money and shrinking credit standards. There is no way to pay down debt, because the boom itself was based on an expansion of debt, not genuine growth and savings. What extra tax revenue did come in was wasted. Now here we are less than one year from the biggest housing boom in history, and California somehow needed to float another $43 billion in bonds.

We produced an enormous housing bubble of unprecedented magnitude. What do we have to show for it? A GDP of 1.6% and sinking fast. It is taking more and more and more credit just to stand still.

Rest assured California is going to need even more bonds in the years to come (if it expects to keep spending money it does not have). The housing bubble has now popped, but the consequences have only begun. The bottom is going to fall out of income and property tax collection. Unemployment is going to soar along with bankruptcies. In a state where one out of 50 working-age adults is a real estate agent, there is bound to be severe problems in a property bust.

Back in December 2005, Tom McClintock writing for ChronWatch wrote about “Arnold and the California Bond Bombshell”:

“Bonds are seductive. They promise immediate gratification, but they conceal a heavy price. They are certainly the most expensive way to finance projects, costing $2 to retire every dollar of debt. Moreover, the state’s borrowing capacity is finite, requiring careful attention to priorities, since debt once issued cannot be rescinded — only repaid. And every dollar borrowed by this generation reduces the ability of the next generation to meet its own needs…

“Gov. Schwarzenegger is now dealing with the result. He must restore the public works built by a generation of giants while discharging a mountain of pointless debt racked up by a generation of spendthrifts. Only by rigorously applying these principles can he hope to do so.”

Arnold has made a stand. He and the voters of California have agreed to float $43 billion in bonds on top of $30 billion or so in existing bonds. In effect, the voters of California seem to think they got something for nothing. But life doesn’t work that way. Given there is no realistic way to pay this debt back, California is headed for bankruptcy. No, don’t expect an announcement tomorrow, or even next year, but the die has been cast.

Regards,
Mike Shedlock ~ “Mish”
November 20, 2006
Author Image for Michael Shedlock
Michael Shedlock

Mike Shedlock (Mish) is a registered investment advisor representative for SitkaPacific Capital Management. His blog Mish’s Global Economic Trend Analysis includes commentary every day of the week. Mike is also a contributing “professor” on Minyanville.

Friday, February 26, 2010

EM08 Mythbuster: Inefficient Government

A quick point and then back to our movies. Hey, it's Friday night and man does not live by EM08 doom and gloom alone.

I've been hearing so much talk about the inefficiencies of our government, whether because of partisanship, size or systemic failures such as super-majority voting and filibustering. I've even had some acquaintances display their disgust at our big lumbering government that can't seem to get off of its own tail, let alone do something for us.

Here's my take; uncle scam's super efficient, in fact, astoundingly so. Consider the biggest socialist welfare theft in history, aka, TARP, which was passed in a matter of weeks, EVEN IN THE FACE OF BEING INITIALLY SHOT DOWN BY CONGRESS PREVIOUSLY DUE TO PUBLIC DEMAND.

uncle scam to congress: "SCREW PUBLIC DEMAND!"

Oh no, our government works WAY too well, those who think otherwise are just looking through the wrong end of the telescope.

If you think this argument's a bit too facile, I suggest you familiarize yourself with the way taxes really work in uncle scam's system. You don't have to read the bazillion page tax code either, just check out the great David Cay Johnston.

Suggestion before watching; wrap your head tight with some ace bandages, because if you're normal, it'll explode and make a mess.

==================
Image by Mike Licht, who ran it here in a very good article here on something that, as a sports fan, I feel passionate about; the business of sports and its intersection with the political economy. David Cay Johnston himself exposes the way sports owners exploit public money for their own financial benefit, George dumbya Bush, ex-Texas Rangers owner, being one of them.

Thursday, February 25, 2010

They've Trashed Everything

I'm all for outting so let's name some more names and show faces, shall we? Here they are folks, some of the key EM08 ho-bags whose heads I for one have been calling for; the credit ratings agencies. From left to right, Fitch Ratings' Stephen Joynt, Moody's Raymond McDaniel and S&P's Deven Sharma:


TAKEAWAYS

1. The CRAs provided the AAA investment grade ratings to the "financial products" - read: the cards in the investment banks' version of 3 card monte - based upon the crapass subprime mortgages.

2. That the CRAs gave their approval is one thing. That their payouts came from the investment banks -- the ones who concocted the 3 card monte financial packages! -- is quite another. This is called conflict of interest where I come from. I come from the United States. Unfortunately, we now live in Bizarro world, where things like "conflict of interest" don't exist.

3. The CRAs ho'd for money by committing fraud, and the banks were their pimps. While it's perfectly legal to give one's opinion about something, it's quite another when the government is certifying you as a ratings agency to do so on behalf of the public good.

4. Why is no one in the mainstream press/mass media talking - long and hard - about this?

If you go here you can see their statements given to yet another fancy shmancy committee: The Committee on Oversight and Government Reform, chaired by Edolphus Towns. This happened October 22, 2008.

From Henry Waxman's (my rep) statement:

The leading credit rating agencies grew rich rating mortgage-backed securities and CDOs. ...total revenues for the three firms doubled from $3 billion in 2002 to over $6 billion in 2007. At Moody’s, profits quadrupled between 2000 and 2007. In fact, Moody’s had the highest profit margin of any company in the S&P 500 for five years in row.

Says a lot, doesn't it?

Tuesday, February 23, 2010

Cuts for Cooky: Alice Smith: Desert Song

Alice Smith is of the better crop of young musicians. Intelligent, down to earth, plenty of old skool going on and yet very today. There are better quality vids of her, but this performance shows how raw she can get. I love that her technique and range (4 octaves) never gets in the way like a much more popular singer who, just because she can hit coloratura -- I won't mention any names but her initials are "M.C.," that's "M.C." -- is given more weight and value in the marketplace. Like everything else in our culture, music is fast food too.

Smith's instrument is rich and powerful, qualities I dig - she's a real woman. In that sense she reminds me of one of my all time favorites, Sarah Vaughan. Part of that is she's in the alto range, but her appeal encompasses her impeccable taste (she writes well) and in never abandoning her boop, that raw edge. Throw in aesthetics, like her sticking with my favorite configuration for a band -- the guitar/bass/drums power trio, a slight touch of Broadway theatricality once in a while, and you get a musician with uncommon range who's gotta be bad. Rumor is Smith's sophomore effort drops this summer.

I like a lot of folks can get wrapped up throwing stones at the young kids of today. That's what living in a glass house'll get you. But the way I look at it, if they can produce an artist this good, they can't be all bad.

Press play to see what the fuss is about:

Saturday, February 20, 2010

Welcome to the Terrordome

Once in a while I'll venture onto one of the social networking sites and attempt to catch up with acquaintances. I'll be honest; I'm half-assed about these sites because knowing Bridget ate a tart at Ago that made her orgasm doesn't do a thing for me or my orgasms.

I mention the inanity of this exercise because once in a bit I'll see a comment that will tempt me to add my thoughts. Today was one of them. The setup was my friend Shawn's page, and he'd posted about the loony bin who'd flown his plane into the IRS building, yet he's not considered a terrorist. Someone commented that Tim McVeigh's "the worst" to which I said:

i disagree; tim mcveigh's a shithead, but what congress, the exec & judicial branches as well as the regulators (sec, cftc, et al), not to mention the jerkoff bankers, analysts and ratings agencies have done is no less than genocide on millions - worldwide. and the most astounding thing? this system is STILL intact and doing the SAME exact things that produced the meltdown IN THE FIRST PLACE!!! in fact, while the rest of us are on our knees, goldman sachs of shit ceo lloyd blankfein is taking "ONLY" a $9 mil bonus this year...

so the REAL question of our time is:

WHEN will the american people WAKE THE F UP?

the overs/unders on that are never/as long as they have mcdonald's, cable tv & suvs.

and the report card on barack/his admin? so far, D- over F. and i supported him over mccain [didn't vote for him though]. but enough's enough.

make no mistake; this is not a financial coup, it is genocide....


In true Freudian subconscious play, one of the things about stream of consciousness and free association is that every once in a while things will really come to the fore. This is one of them, because up until now, I really hadn't - in Frank Luntz or Tom Friedman style - named EM08 beyond "EM08" as a utilitarian label.

"Financial coup d'etat" is a start in the right direction, although it's still a bit too martial for my taste, yet it does have a place. "Genocide," however, is loaded, although it is - again, taking a cue from Luntz - being broadened from a specific race or ethnicity's targeting to class. So, the econ elite's war on all else, with the financial coup being an instrument in order to accomplish the goal of theft. Genocide is the result.

I don't use the term "genocide" lightly, either. To the contrary, I think it is perfect in application here, with the element of speed needing to be illumined. Meaning that Native Americans were wiped out in one form or another or Jews were shipped to camps en masse. That is easy enough to see because it is happening in a very systematic and rapid manner. Also, it was very clearly intentional, which I'll address shortly.

With EM08, this systematization of tyranny is far more sophisticated (albeit unwieldy and with more variables and yet, a much greater head start and range of camouflage and protections for the econ elites now) to the Native American or Jewish exterminations, however, what is aiding the banks, their government jackals and associated other hitmen (mass media/fourth estate, analysts, regulators...) is the sheer scope and size so as to render them invisible. There's the scope and size, the unwieldy aspects again. But because of common interests and economic imperatives, it's like a grand perversion of Smith's Invisible Hand mating with La Cosa Nostra and producing their baby, Uncle Scam.

Then there's speed. If President Jackson orders masses of Natives off of their sovereign land because he wants their gold and instigates the Trail of Tears, that's fairly concise and immediate in impact. But let's look at one element of EM08; the first phase of the real estate bubble in order to see why "genocide" will not popularly be applied to what's going on. Here's a simple fact:

*** There were many players; banks, hedge funds, ratings agencies, insurance companies, regulators, politicians, mass media, analysts.

That so many were involved, to greater or lesser degree, obscures the fact that people - not "corporations" - did this and in some relationships with outright knowledge of fraud and conflict of interests. Yet, this is never brought to light by our politicians, congressional inquiries, much less in our bought off overly conglomerated mass media. But because the first phase of the real estate bubble took decades to pop, it's purported to be (by some) and perceived (by some) as "an economic cycle" much like fall after summer, or the melting of our polar ice caps as having nothing to do with man's scarfing down oil like it was his last meal.

In other words, the sheer size and scope of EM08 works to "their" advantage. For the average American, brought to their knees by any number of EM08 pressures, understanding EM08 is like trying to read Manufacturing Consent while riding a Tilt-A-Whirl.

Last, the issue of conspiracy. Whether there is or isn't really isn't the point. It's like talking about whether someone is or isn't racist based upon their intentions, ie, a white person who calls Toyotas "rice burners" isn't racist, they're just being funny. Such talk obscures real racism - in hiring, college admissions, buying or renting a home, number of police inquiries/arrests, imprisonment.... The key is noting what people who wield power as societies and institutional structures do.

With EM08, so what if there wasn't a cabal of evil white men who were led by a sneering Dick Cheney plotting world domination? The fact that they had common interests and the resources to play the way they wanted led them to the same results. The answer is to not get sidetracked by deflections like conspiracy arguments and, as Krishnamurti said, stick to what is.

It may be cliche to say take a lesson from those who talked about watching the Nazis come for the artists, intellectuals, homosexuals, gypsies, and Jews but doing nothing. Yet, as we all watch "helplessly" as millions are being destroyed that is the current situation. Nothing convinces me otherwise.

Friday, February 19, 2010

Capitol of Pain

Beyond a few such bleats of outrage, however, the huge payout was met, by and large, with a collective sigh of resignation. Because beneath America's populist veneer, on a more subtle strata of the national psyche, there remains a strong temptation to not really give a shit.


One of the rare good things to emerge from EM08 are the writers, journalists and analysts who understand what's really going down. It at least affords an oasis in the tsunami of collective shoulder shrugging.

Athletes and gamblers know that they will make mistakes, and the good ones are constantly thinking about how to improve, make better decisions. This is why our national age of non-action in the face of tyranny is the biggest mistake of all, even beyond the bailouts, simply because we don't do anything.

Doing something. It sounds simple. Like "Move your money," which I discussed previously. But the problems of our system of rule are so intertwined that the only way(s) to fight back are holistic ones. In other words, "Move your money" sounds good, and indeed, is good, but in and of itself is as next to nothing.

Instead, money needs to be redefined as your vote, your energy that you put out into the world. There's McDonald's and then there's your local independent home cooking joint, or, to invoke Hollywood, support the government jackals, or support your local sheriff?

Such a mini-revolution is impossible. Hey, I'm a realist. So I savor the few good minds left us who are writing and reporting it as they see it. Among them, Matt Taibbi's of the former group - he, like the great Michael Lewis - is a mensch of a writer; very entertaining.

Even while reporting on the greatest money theft in history.

We're way beyond the point of righteous anger by a factor of 10, at least in my reality. And yet, there's no collective will, nothing pragmatic, direct and constructive toward resistance. In fact, it's the worst "response" of all, the modern-day equivalent of the verbal "like, you know" tick; a shrug of the dis-empowered shoulders and a faux helpless look.



From Rolling Stone

Wall Street's Bailout Hustle
Goldman Sachs and other big banks aren't just pocketing the trillions we gave them to rescue the economy - they're re-creating the conditions for another crash


Illustration by Victor Juhasz



MATT TAIBBI

Posted Feb 17, 2010 5:57 AM

On January 21st, Lloyd Blankfein left a peculiar voicemail message on the work phones of his employees at Goldman Sachs. Fast becoming America's pre-eminent Marvel Comics supervillain, the CEO used the call to deploy his secret weapon: a pair of giant, nuclear-powered testicles. In his message, Blankfein addressed his plan to pay out gigantic year-end bonuses amid widespread controversy over Goldman's role in precipitating the global financial crisis.

The bank had already set aside a tidy $16.2 billion for salaries and bonuses — meaning that Goldman employees were each set to take home an average of $498,246, a number roughly commensurate with what they received during the bubble years. Still, the troops were worried: There were rumors that Dr. Ballsachs, bowing to political pressure, might be forced to scale the number back. After all, the country was broke, 14.8 million Americans were stranded on the unemployment line, and Barack Obama and the Democrats were trying to recover the populist high ground after their bitch-whipping in Massachusetts by calling for a "bailout tax" on banks. Maybe this wasn't the right time for Goldman to be throwing its annual Roman bonus orgy.

Not to worry, Blankfein reassured employees. "In a year that proved to have no shortage of story lines," he said, "I believe very strongly that performance is the ultimate narrative."

Translation: We made a shitload of money last year because we're so amazing at our jobs, so fuck all those people who want us to reduce our bonuses.

Goldman wasn't alone. The nation's six largest banks — all committed to this balls-out, I drink your milkshake! strategy of flagrantly gorging themselves as America goes hungry — set aside a whopping $140 billion for executive compensation last year, a sum only slightly less than the $164 billion they paid themselves in the pre-crash year of 2007. In a gesture of self-sacrifice, Blankfein himself took a humiliatingly low bonus of $9 million, less than the 2009 pay of elephantine New York Knicks washout Eddy Curry. But in reality, not much had changed. "What is the state of our moral being when Lloyd Blankfein taking a $9 million bonus is viewed as this great act of contrition, when every penny of it was a direct transfer from the taxpayer?" asks Eliot Spitzer, who tried to hold Wall Street accountable during his own ill-fated stint as governor of New York.

Beyond a few such bleats of outrage, however, the huge payout was met, by and large, with a collective sigh of resignation. Because beneath America's populist veneer, on a more subtle strata of the national psyche, there remains a strong temptation to not really give a shit. The rich, after all, have always made way too much money; what's the difference if some fat cat in New York pockets $20 million instead of $10 million?

The only reason such apathy exists, however, is because there's still a widespread misunderstanding of how exactly Wall Street "earns" its money, with emphasis on the quotation marks around "earns." The question everyone should be asking, as one bailout recipient after another posts massive profits — Goldman reported $13.4 billion in profits last year, after paying out that $16.2 billion in bonuses and compensation — is this: In an economy as horrible as ours, with every factory town between New York and Los Angeles looking like those hollowed-out ghost ships we see on History Channel documentaries like Shipwrecks of the Great Lakes, where in the hell did Wall Street's eye-popping profits come from, exactly? Did Goldman go from bailout city to $13.4 billion in the black because, as Blankfein suggests, its "performance" was just that awesome? A year and a half after they were minutes away from bankruptcy, how are these assholes not only back on their feet again, but hauling in bonuses at the same rate they were during the bubble?

The answer to that question is basically twofold: They raped the taxpayer, and they raped their clients.

The bottom line is that banks like Goldman have learned absolutely nothing from the global economic meltdown. In fact, they're back conniving and playing speculative long shots in force — only this time with the full financial support of the U.S. government. In the process, they're rapidly re-creating the conditions for another crash, with the same actors once again playing the same crazy games of financial chicken with the same toxic assets as before.

That's why this bonus business isn't merely a matter of getting upset about whether or not Lloyd Blankfein buys himself one tropical island or two on his next birthday. The reality is that the post-bailout era in which Goldman thrived has turned out to be a chaotic frenzy of high-stakes con-artistry, with taxpayers and clients bilked out of billions using a dizzying array of old-school hustles that, but for their ponderous complexity, would have fit well in slick grifter movies like The Sting and Matchstick Men. There's even a term in con-man lingo for what some of the banks are doing right now, with all their cosmetic gestures of scaling back bonuses and giving to charities. In the grifter world, calming down a mark so he doesn't call the cops is known as the "Cool Off."

To appreciate how all of these (sometimes brilliant) schemes work is to understand the difference between earning money and taking scores, and to realize that the profits these banks are posting don't so much represent national growth and recovery, but something closer to the losses one would report after a theft or a car crash. Many Americans instinctively understand this to be true — but, much like when your wife does it with your 300-pound plumber in the kids' playroom, knowing it and actually watching the whole scene from start to finish are two very different things. In that spirit, a brief history of the best 18 months of grifting this country has ever seen:

CON #1 THE SWOOP AND SQUAT

By now, most people who have followed the financial crisis know that the bailout of AIG was actually a bailout of AIG's "counterparties" — the big banks like Goldman to whom the insurance giant owed billions when it went belly up.

What is less understood is that the bailout of AIG counter-parties like Goldman and Société Générale, a French bank, actually began before the collapse of AIG, before the Federal Reserve paid them so much as a dollar. Nor is it understood that these counterparties actually accelerated the wreck of AIG in what was, ironically, something very like the old insurance scam known as "Swoop and Squat," in which a target car is trapped between two perpetrator vehicles and wrecked, with the mark in the game being the target's insurance company — in this case, the government.

This may sound far-fetched, but the financial crisis of 2008 was very much caused by a perverse series of legal incentives that often made failed investments worth more than thriving ones. Our economy was like a town where everyone has juicy insurance policies on their neighbors' cars and houses. In such a town, the driving will be suspiciously bad, and there will be a lot of fires.

AIG was the ultimate example of this dynamic. At the height of the housing boom, Goldman was selling billions in bundled mortgage-backed securities — often toxic crap of the no-money-down, no-identification-needed variety of home loan — to various institutional suckers like pensions and insurance companies, who frequently thought they were buying investment-grade instruments. At the same time, in a glaring example of the perverse incentives that existed and still exist, Goldman was also betting against those same sorts of securities — a practice that one government investigator compared to "selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars."

Goldman often "insured" some of this garbage with AIG, using a virtually unregulated form of pseudo-insurance called credit-default swaps. Thanks in large part to deregulation pushed by Bob Rubin, former chairman of Goldman, and Treasury secretary under Bill Clinton, AIG wasn't required to actually have the capital to pay off the deals. As a result, banks like Goldman bought more than $440 billion worth of this bogus insurance from AIG, a huge blind bet that the taxpayer ended up having to eat.

Thus, when the housing bubble went crazy, Goldman made money coming and going. They made money selling the crap mortgages, and they made money by collecting on the bogus insurance from AIG when the crap mortgages flopped.

Still, the trick for Goldman was: how to collect the insurance money. As AIG headed into a tailspin that fateful summer of 2008, it looked like the beleaguered firm wasn't going to have the money to pay off the bogus insurance. So Goldman and other banks began demanding that AIG provide them with cash collateral. In the 15 months leading up to the collapse of AIG, Goldman received $5.9 billion in collateral. Société Générale, a bank holding lots of mortgage-backed crap originally underwritten by Goldman, received $5.5 billion. These collateral demands squeezing AIG from two sides were the "Swoop and Squat" that ultimately crashed the firm. "It put the company into a liquidity crisis," says Eric Dinallo, who was intimately involved in the AIG bailout as head of the New York State Insurance Department.

It was a brilliant move. When a company like AIG is about to die, it isn't supposed to hand over big hunks of assets to a single creditor like Goldman; it's supposed to equitably distribute whatever assets it has left among all its creditors. Had AIG gone bankrupt, Goldman would have likely lost much of the $5.9 billion that it pocketed as collateral. "Any bankruptcy court that saw those collateral payments would have declined that transaction as a fraudulent conveyance," says Barry Ritholtz, the author of Bailout Nation. Instead, Goldman and the other counterparties got their money out in advance — putting a torch to what was left of AIG. Fans of the movie Goodfellas will recall Henry Hill and Tommy DeVito taking the same approach to the Bamboo Lounge nightclub they'd been gouging. Roll the Ray Liotta narration: "Finally, when there's nothing left, when you can't borrow another buck . . . you bust the joint out. You light a match."

And why not? After all, according to the terms of the bailout deal struck when AIG was taken over by the state in September 2008, Goldman was paid 100 cents on the dollar on an additional $12.9 billion it was owed by AIG — again, money it almost certainly would not have seen a fraction of had AIG proceeded to a normal bankruptcy. Along with the collateral it pocketed, that's $19 billion in pure cash that Goldman would not have "earned" without massive state intervention. How's that $13.4 billion in 2009 profits looking now? And that doesn't even include the direct bailouts of Goldman Sachs and other big banks, which began in earnest after the collapse of AIG.

CON #2 THE DOLLAR STORE

In the usual "DollarStore" or "Big Store" scam — popularized in movies like The Sting — a huge cast of con artists is hired to create a whole fake environment into which the unsuspecting mark walks and gets robbed over and over again. A warehouse is converted into a makeshift casino or off-track betting parlor, the fool walks in with money, leaves without it.

The two key elements to the Dollar Store scam are the whiz-bang theatrical redecorating job and the fact that everyone is in on it except the mark. In this case, a pair of investment banks were dressed up to look like commercial banks overnight, and it was the taxpayer who walked in and lost his shirt, confused by the appearance of what looked like real Federal Reserve officials minding the store.

Less than a week after the AIG bailout, Goldman and another investment bank, Morgan Stanley, applied for, and received, federal permission to become bank holding companies — a move that would make them eligible for much greater federal support. The stock prices of both firms were cratering, and there was talk that either or both might go the way of Lehman Brothers, another once-mighty investment bank that just a week earlier had disappeared from the face of the earth under the weight of its toxic assets. By law, a five-day waiting period was required for such a conversion — but the two banks got them overnight, with final approval actually coming only five days after the AIG bailout.

Why did they need those federal bank charters? This question is the key to understanding the entire bailout era — because this Dollar Store scam was the big one. Institutions that were, in reality, high-risk gambling houses were allowed to masquerade as conservative commercial banks. As a result of this new designation, they were given access to a virtually endless tap of "free money" by unsuspecting taxpayers. The $10 billion that Goldman received under the better-known TARP bailout was chump change in comparison to the smorgasbord of direct and indirect aid it qualified for as a commercial bank.

When Goldman Sachs and Morgan Stanley got their federal bank charters, they joined Bank of America, Citigroup, J.P. Morgan Chase and the other banking titans who could go to the Fed and borrow massive amounts of money at interest rates that, thanks to the aggressive rate-cutting policies of Fed chief Ben Bernanke during the crisis, soon sank to zero percent. The ability to go to the Fed and borrow big at next to no interest was what saved Goldman, Morgan Stanley and other banks from death in the fall of 2008. "They had no other way to raise capital at that moment, meaning they were on the brink of insolvency," says Nomi Prins, a former managing director at Goldman Sachs. "The Fed was the only shot."

In fact, the Fed became not just a source of emergency borrowing that enabled Goldman and Morgan Stanley to stave off disaster — it became a source of long-term guaranteed income. Borrowing at zero percent interest, banks like Goldman now had virtually infinite ways to make money. In one of the most common maneuvers, they simply took the money they borrowed from the government at zero percent and lent it back to the government by buying Treasury bills that paid interest of three or four percent. It was basically a license to print money — no different than attaching an ATM to the side of the Federal Reserve.

"You're borrowing at zero, putting it out there at two or three percent, with hundreds of billions of dollars — man, you can make a lot of money that way," says the manager of one prominent hedge fund. "It's free money." Which goes a long way to explaining Goldman's enormous profits last year. But all that free money was amplified by another scam:

CON #3 THE PIG IN THE POKE

At one point or another, pretty much everyone who takes drugs has been burned by this one, also known as the "Rocks in the Box" scam or, in its more elaborate variations, the "Jamaican Switch." Someone sells you what looks like an eightball of coke in a baggie, you get home and, you dumbass, it's baby powder.

The scam's name comes from the Middle Ages, when some fool would be sold a bound and gagged pig that he would see being put into a bag; he'd miss the switch, then get home and find a tied-up cat in there instead. Hence the expression "Don't let the cat out of the bag."

The "Pig in the Poke" scam is another key to the entire bailout era. After the crash of the housing bubble — the largest asset bubble in history — the economy was suddenly flooded with securities backed by failing or near-failing home loans. In the cleanup phase after that bubble burst, the whole game was to get taxpayers, clients and shareholders to buy these worthless cats, but at pig prices.

One of the first times we saw the scam appear was in September 2008, right around the time that AIG was imploding. That was when the Fed changed some of its collateral rules, meaning banks that could once borrow only against sound collateral, like Treasury bills or AAA-rated corporate bonds, could now borrow against pretty much anything — including some of the mortgage-backed sewage that got us into this mess in the first place. In other words, banks that once had to show a real pig to borrow from the Fed could now show up with a cat and get pig money. "All of a sudden, banks were allowed to post absolute shit to the Fed's balance sheet," says the manager of the prominent hedge fund.

The Fed spelled it out on September 14th, 2008, when it changed the collateral rules for one of its first bailout facilities — the Primary Dealer Credit Facility, or PDCF. The Fed's own write-up described the changes: "With the Fed's action, all the kinds of collateral then in use . . . including non-investment-grade securities and equities . . . became eligible for pledge in the PDCF."

Translation: We now accept cats.

The Pig in the Poke also came into play in April of last year, when Congress pushed a little-known agency called the Financial Accounting Standards Board, or FASB, to change the so-called "mark-to-market" accounting rules. Until this rule change, banks had to assign a real-market price to all of their assets. If they had a balance sheet full of securities they had bought at $3 that were now only worth $1, they had to figure their year-end accounting using that $1 value. In other words, if you were the dope who bought a cat instead of a pig, you couldn't invite your shareholders to a slate of pork dinners come year-end accounting time.

But last April, FASB changed all that. From now on, it announced, banks could avoid reporting losses on some of their crappy cat investments simply by declaring that they would "more likely than not" hold on to them until they recovered their pig value. In short, the banks didn't even have to actually hold on to the toxic shit they owned — they just had to sort of promise to hold on to it.

That's why the "profit" numbers of a lot of these banks are really a joke. In many cases, we have absolutely no idea how many cats are in their proverbial bag. What they call "profits" might really be profits, only minus undeclared millions or billions in losses.

"They're hiding all this stuff from their shareholders," says Ritholtz, who was disgusted that the banks lobbied for the rule changes. "Now, suddenly banks that were happy to mark to market on the way up don't have to mark to market on the way down."

CON #4 THE RUMANIAN BOX

One of the great innovations of Victor Lustig, the legendary Depression-era con man who wrote the famous "Ten Commandments for Con Men," was a thing called the "Rumanian Box." This was a little machine that a mark would put a blank piece of paper into, only to see real currency come out the other side. The brilliant Lustig sold this Rumanian Box over and over again for vast sums — but he's been outdone by the modern barons of Wall Street, who managed to get themselves a real Rumanian Box.

How they accomplished this is a story that by itself highlights the challenge of placing this era in any kind of historical context of known financial crime. What the banks did was something that was never — and never could have been — thought of before. They took so much money from the government, and then did so little with it, that the state was forced to start printing new cash to throw at them. Even the great Lustig in his wildest, horniest dreams could never have dreamed up this one.

The setup: By early 2009, the banks had already replenished themselves with billions if not trillions in bailout money. It wasn't just the $700 billion in TARP cash, the free money provided by the Fed, and the untold losses obscured by accounting tricks. Another new rule allowed banks to collect interest on the cash they were required by law to keep in reserve accounts at the Fed — meaning the state was now compensating the banks simply for guaranteeing their own solvency. And a new federal operation called the Temporary Liquidity Guarantee Program let insolvent and near-insolvent banks dispense with their deservedly ruined credit profiles and borrow on a clean slate, with FDIC backing. Goldman borrowed $29 billion on the government's good name, J.P. Morgan Chase $38 billion, and Bank of America $44 billion. "TLGP," says Prins, the former Goldman manager, "was a big one."

Collectively, all this largesse was worth trillions. The idea behind the flood of money, from the government's standpoint, was to spark a national recovery: We refill the banks' balance sheets, and they, in turn, start to lend money again, recharging the economy and producing jobs. "The banks were fast approaching insolvency," says Rep. Paul Kanjorski, a vocal critic of Wall Street who nevertheless defends the initial decision to bail out the banks. "It was vitally important that we recapitalize these institutions."

But here's the thing. Despite all these trillions in government rescues, despite the Fed slashing interest rates down to nothing and showering the banks with mountains of guarantees, Goldman and its friends had still not jump-started lending again by the first quarter of 2009. That's where those nuclear-powered balls of Lloyd Blankfein came into play, as Goldman and other banks basically threatened to pick up their bailout billions and go home if the government didn't fork over more cash — a lot more. "Even if the Fed could make interest rates negative, that wouldn't necessarily help," warned Goldman's chief domestic economist, Jan Hatzius. "We're in a deep recession mainly because the private sector, for a variety of reasons, has decided to save a lot more."

Translation: You can lower interest rates all you want, but we're still not fucking lending the bailout money to anyone in this economy. Until the government agreed to hand over even more goodies, the banks opted to join the rest of the "private sector" and "save" the taxpayer aid they had received — in the form of bonuses and compensation.

The ploy worked. In March of last year, the Fed sharply expanded a radical new program called quantitative easing, which effectively operated as a real-live Rumanian Box. The government put stacks of paper in one side, and out came $1.2 trillion "real" dollars.

The government used some of that freshly printed money to prop itself up by purchasing Treasury bonds — a desperation move, since Washington's demand for cash was so great post-Clusterfuck '08 that even the Chinese couldn't buy U.S. debt fast enough to keep America afloat. But the Fed used most of the new cash to buy mortgage-backed securities in an effort to spur home lending — instantly creating a massive market for major banks.

And what did the banks do with the proceeds? Among other things, they bought Treasury bonds, essentially lending the money back to the government, at interest. The money that came out of the magic Rumanian Box went from the government back to the government, with Wall Street stepping into the circle just long enough to get paid. And once quantitative easing ends, as it is scheduled to do in March, the flow of money for home loans will once again grind to a halt. The Mortgage Bankers Association expects the number of new residential mortgages to plunge by 40 percent this year.

CON #5 THE BIG MITT

All of that Rumanian box paper was made even more valuable by running it through the next stage of the grift. Michael Masters, one of the country's leading experts on commodities trading, compares this part of the scam to the poker game in the Bill Murray comedy Stripes. "It's like that scene where John Candy leans over to the guy who's new at poker and says, 'Let me see your cards,' then starts giving him advice," Masters says. "He looks at the hand, and the guy has bad cards, and he's like, 'Bluff me, come on! If it were me, I'd bet everything!' That's what it's like. It's like they're looking at your cards as they give you advice."

In more ways than one can count, the economy in the bailout era turned into a "Big Mitt," the con man's name for a rigged poker game. Everybody was indeed looking at everyone else's cards, in many cases with state sanction. Only taxpayers and clients were left out of the loop.

At the same time the Fed and the Treasury were making massive, earthshaking moves like quantitative easing and TARP, they were also consulting regularly with private advisory boards that include every major player on Wall Street. The Treasury Borrowing Advisory Committee has a J.P. Morgan executive as its chairman and a Goldman executive as its vice chairman, while the board advising the Fed includes bankers from Capital One and Bank of New York Mellon. That means that, in addition to getting great gobs of free money, the banks were also getting clear signals about when they were getting that money, making it possible to position themselves to make the appropriate investments.

One of the best examples of the banks blatantly gambling, and winning, on government moves was the Public-Private Investment Program, or PPIP. In this bizarre scheme cooked up by goofball-geek Treasury Secretary Tim Geithner, the government loaned money to hedge funds and other private investors to buy up the absolutely most toxic horseshit on the market — the same kind of high-risk, high-yield mortgages that were most responsible for triggering the financial chain reaction in the fall of 2008. These satanic deals were the basic currency of the bubble: Jobless dope fiends bought houses with no money down, and the big banks wrapped those mortgages into securities and then sold them off to pensions and other suckers as investment-grade deals. The whole point of the PPIP was to get private investors to relieve the banks of these dangerous assets before they hurt any more innocent bystanders.

But what did the banks do instead, once they got wind of the PPIP? They started buying that worthless crap again, presumably to sell back to the government at inflated prices! In the third quarter of last year, Goldman, Morgan Stanley, Citigroup and Bank of America combined to add $3.36 billion of exactly this horseshit to their balance sheets.

This brazen decision to gouge the taxpayer startled even hardened market observers. According to Michael Schlachter of the investment firm Wilshire Associates, it was "absolutely ridiculous" that the banks that were supposed to be reducing their exposure to these volatile instruments were instead loading up on them in order to make a quick buck. "Some of them created this mess," he said, "and they are making a killing undoing it."

CON #6 THE WIRE

Here's the thing about our current economy. When Goldman and Morgan Stanley transformed overnight from investment banks into commercial banks, we were told this would mean a new era of "significantly tighter regulations and much closer supervision by bank examiners," as The New York Times put it the very next day. In reality, however, the conversion of Goldman and Morgan Stanley simply completed the dangerous concentration of power and wealth that began in 1999, when Congress repealed the Glass-Steagall Act — the Depression-era law that had prevented the merger of insurance firms, commercial banks and investment houses. Wall Street and the government became one giant dope house, where a few major players share valuable information between conflicted departments the way junkies share needles.

One of the most common practices is a thing called front-running, which is really no different from the old "Wire" con, another scam popularized in The Sting. But instead of intercepting a telegraph wire in order to bet on racetrack results ahead of the crowd, what Wall Street does is make bets ahead of valuable information they obtain in the course of everyday business.

Say you're working for the commodities desk of a big investment bank, and a major client — a pension fund, perhaps — calls you up and asks you to buy a billion dollars of oil futures for them. Once you place that huge order, the price of those futures is almost guaranteed to go up. If the guy in charge of asset management a few desks down from you somehow finds out about that, he can make a fortune for the bank by betting ahead of that client of yours. The deal would be instantaneous and undetectable, and it would offer huge profits. Your own client would lose money, of course — he'd end up paying a higher price for the oil futures he ordered, because you would have driven up the price. But that doesn't keep banks from screwing their own customers in this very way.

The scam is so blatant that Goldman Sachs actually warns its clients that something along these lines might happen to them. In the disclosure section at the back of a research paper the bank issued on January 15th, Goldman advises clients to buy some dubious high-yield bonds while admitting that the bank itself may bet against those same shitty bonds. "Our salespeople, traders and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research," the disclosure reads. "Our asset-management area, our proprietary-trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research."

Banks like Goldman admit this stuff openly, despite the fact that there are securities laws that require banks to engage in "fair dealing with customers" and prohibit analysts from issuing opinions that are at odds with what they really think. And yet here they are, saying flat-out that they may be issuing an opinion at odds with what they really think.

To help them screw their own clients, the major investment banks employ high-speed computer programs that can glimpse orders from investors before the deals are processed and then make trades on behalf of the banks at speeds of fractions of a second. None of them will admit it, but everybody knows what this computerized trading — known as "flash trading" — really is. "Flash trading is nothing more than computerized front-running," says the prominent hedge-fund manager. The SEC voted to ban flash trading in September, but five months later it has yet to issue a regulation to put a stop to the practice.

Over the summer, Goldman suffered an embarrassment on that score when one of its employees, a Russian named Sergey Aleynikov, allegedly stole the bank's computerized trading code. In a court proceeding after Aleynikov's arrest, Assistant U.S. Attorney Joseph Facciponti reported that "the bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways."

Six months after a federal prosecutor admitted in open court that the Goldman trading program could be used to unfairly manipulate markets, the bank released its annual numbers. Among the notable details was the fact that a staggering 76 percent of its revenue came from trading, both for its clients and for its own account. "That is much, much higher than any other bank," says Prins, the former Goldman managing director. "If I were a client and I saw that they were making this much money from trading, I would question how badly I was getting screwed."

Why big institutional investors like pension funds continually come to Wall Street to get raped is the million-dollar question that many experienced observers puzzle over. Goldman's own explanation for this phenomenon is comedy of the highest order. In testimony before a government panel in January, Blankfein was confronted about his firm's practice of betting against the same sorts of investments it sells to clients. His response: "These are the professional investors who want this exposure."

In other words, our clients are big boys, so screw 'em if they're dumb enough to take the sucker bets I'm offering.

CON #7 THE RELOAD

Not many con men are good enough or brazen enough to con the same victim twice in a row, but the few who try have a name for this excellent sport: reloading. The usual way to reload on a repeat victim (called an "addict" in grifter parlance) is to rope him into trying to get back the money he just lost. This is exactly what started to happen late last year.

It's important to remember that the housing bubble itself was a classic confidence game — the Ponzi scheme. The Ponzi scheme is any scam in which old investors must be continually paid off with money from new investors to keep up what appear to be high rates of investment return. Residential housing was never as valuable as it seemed during the bubble; the soaring home values were instead a reflection of a continual upward rush of new investors in mortgage-backed securities, a rush that finally collapsed in 2008.

But by the end of 2009, the unimaginable was happening: The bubble was re-inflating. A bailout policy that was designed to help us get out from under the bursting of the largest asset bubble in history inadvertently produced exactly the opposite result, as all that government-fueled capital suddenly began flowing into the most dangerous and destructive investments all over again. Wall Street was going for the reload.

A lot of this was the government's own fault, of course. By slashing interest rates to zero and flooding the market with money, the Fed was replicating the historic mistake that Alan Greenspan had made not once, but twice, before the tech bubble in the early 1990s and before the housing bubble in the early 2000s. By making sure that traditionally safe investments like CDs and savings accounts earned basically nothing, thanks to rock-bottom interest rates, investors were forced to go elsewhere to search for moneymaking opportunities.

Now we're in the same situation all over again, only far worse. Wall Street is flooded with government money, and interest rates that are not just low but flat are pushing investors to seek out more "creative" opportunities. (It's "Greenspan times 10," jokes one hedge-fund trader.) Some of that money could be put to use on Main Street, of course, backing the efforts of investment-worthy entrepreneurs. But that's not what our modern Wall Street is built to do. "They don't seem to want to lend to small and medium-sized business," says Rep. Brad Sherman, who serves on the House Financial Services Committee. "What they want to invest in is marketable securities. And the definition of small and medium-sized businesses, for the most part, is that they don't have marketable securities. They have bank loans."

In other words, unless you're dealing with the stock of a major, publicly traded company, or a giant pile of home mortgages, or the bonds of a large corporation, or a foreign currency, or oil futures, or some country's debt, or anything else that can be rapidly traded back and forth in huge numbers, factory-style, by big banks, you're not really on Wall Street's radar.

So with small business out of the picture, and the safe stuff not worth looking at thanks to the Fed's low interest rates, where did Wall Street go? Right back into the shit that got us here.

One trader, who asked not to be identified, recounts a story of what happened with his hedge fund this past fall. His firm wanted to short — that is, bet against — all the crap toxic bonds that were suddenly in vogue again. The fund's analysts had examined the fundamentals of these instruments and concluded that they were absolutely not good investments.

So they took a short position. One month passed, and they lost money. Another month passed — same thing. Finally, the trader just shrugged and decided to change course and buy.

"I said, 'Fuck it, let's make some money,'" he recalls. "I absolutely did not believe in the fundamentals of any of this stuff. However, I can get on the bandwagon, just so long as I know when to jump out of the car before it goes off the damn cliff!"

This is the very definition of bubble economics — betting on crowd behavior instead of on fundamentals. It's old investors betting on the arrival of new ones, with the value of the underlying thing itself being irrelevant. And this behavior is being driven, no surprise, by the biggest firms on Wall Street.

The research report published by Goldman Sachs on January 15th underlines this sort of thinking. Goldman issued a strong recommendation to buy exactly the sort of high-yield toxic crap our hedge-fund guy was, by then, driving rapidly toward the cliff. "Summarizing our views," the bank wrote, "we expect robust flows . . . to dominate fundamentals." In other words: This stuff is crap, but everyone's buying it in an awfully robust way, so you should too. Just like tech stocks in 1999, and mortgage-backed securities in 2006.

To sum up, this is what Lloyd Blankfein meant by "performance": Take massive sums of money from the government, sit on it until the government starts printing trillions of dollars in a desperate attempt to restart the economy, buy even more toxic assets to sell back to the government at inflated prices — and then, when all else fails, start driving us all toward the cliff again with a frank and open endorsement of bubble economics. I mean, shit — who wouldn't deserve billions in bonuses for doing all that?

Con artists have a word for the inability of their victims to accept that they've been scammed. They call it the "True Believer Syndrome." That's sort of where we are, in a state of nagging disbelief about the real problem on Wall Street. It isn't so much that we have inadequate rules or incompetent regulators, although both of these things are certainly true. The real problem is that it doesn't matter what regulations are in place if the people running the economy are rip-off artists. The system assumes a certain minimum level of ethical behavior and civic instinct over and above what is spelled out by the regulations. If those ethics are absent — well, this thing isn't going to work, no matter what we do. Sure, mugging old ladies is against the law, but it's also easy. To prevent it, we depend, for the most part, not on cops but on people making the conscious decision not to do it.

That's why the biggest gift the bankers got in the bailout was not fiscal but psychological. "The most valuable part of the bailout," says Rep. Sherman, "was the implicit guarantee that they're Too Big to Fail." Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures. And what should really freak everyone out is the fact that Wall Street immediately started skimming off its own rescue money. If the bailouts validated anew the crooked psychology of the bubble, the recent profit and bonus numbers show that the same psychology is back, thriving, and looking for new disasters to create. "It's evidence," says Rep. Kanjorski, "that they still don't get it."

More to the point, the fact that we haven't done much of anything to change the rules and behavior of Wall Street shows that we still don't get it. Instituting a bailout policy that stressed recapitalizing bad banks was like the addict coming back to the con man to get his lost money back. Ask yourself how well that ever works out. And then get ready for the reload.

[From Issue 1099 — March 4, 2010]

Tuesday, February 16, 2010

Now What?

One of the things alarmists do is scare folks, and with EM08 continuing to roll, people who are not elites should definitely be concerned, which is obvious. But what to do with that concern? So I know about a million bloggers and writers who see the nude king, and...?

This is our current dilemma, and is the question of our lifetime.

Much of Chris Hedges' article below is alarmist - smart, but alarmist. He stands apart though by offering a prescription, general as it is, which I happen to agree with; sticking together.

I've said it before, this is what the elite does, they conglomerate. Some forecasters are predicting that the historic conglomeration that's created the super banks is headed for another round. That's astounding, but not surprising, if you look at the pattern that's been corporate America.

So it's up to us to also conglomerate. But even if enough of us see the logic in this, then there are the many hurdles to surmount, chief among them, how to organize and manage resources. This is why I think a network of small, self-sustaining communities makes sense. By "small," perhaps no more than a few thousand folks. This size allows them to be more nimble, more easily manageable, and for ideas to flow much more rapidly than in a larger bureaucratic structure - a key advantage.

Also, water is platinum, rubies and gold rolled into one. I've heard many say to begin hoarding precious metals, but in hard times, you can't drink ingots. None of our talk - alarmist and otherwise - about global warming, our financial crisis, the energy crisis... will solve the problem of potable water in hard times. If you think people were crazed with $4 a gallon gas, you ain't seen nothing until they haven't had clean water for a few days.

From where I stand, Americans are way too hypnotized, distracted and dumbed down for any kind of mass, concerted effort toward this kind of system to ever be. It's a long shot at best in my book. What I'm advocating, in a sense, is systems thinking that logically plots out resources and how to manage them in a small group. One thing's for sure though; the coming wave of next round sub-prime mortgages is no joke, just as retiring boomers who will bleed medicare and social security.

For the most part, I agree with Chris Hedges; he can get a little "left flighty" for my taste - for instance not in his invocation of Schumacher, whom I revere, but Hedges quotes the Schumacher Society, and uses a quote that's tree-huggerish as opposed to E.F.'s pragmatism. On the other hand, I couldn't agree more with his take on Obama's campaign as being the marketing triumph it was and still is. So, in general I agree with Hedges and his synthesis and, as promised, he does offer a prescription for the little people.

https://www.adbusters.org/magazine/88/chris-hedges.html

Chris Hedges: Zero Point of Systemic Collapse

We stand on the cusp of one of humanity’s most dangerous moments.

08 Feb 2010

Aleksandr Herzen, speaking a century ago to a group of anarchists about how to overthrow the czar, reminded his listeners that it was not their job to save a dying system but to replace it: “We think we are the doctors. We are the disease.” All resistance must recognize that the body politic and global capitalism are dead. We should stop wasting energy trying to reform or appeal to it. This does not mean the end of resistance, but it does mean very different forms of resistance. It means turning our energies toward building sustainable communities to weather the coming crisis, since we will be unable to survive and resist without a cooperative effort.

These communities, if they retreat into a pure survivalist mode without linking themselves to the concentric circles of the wider community, the state and the planet, will become as morally and spiritually bankrupt as the corporate forces arrayed against us. All infrastructures we build, like the monasteries in the Middle Ages, should seek to keep alive the intellectual and artistic traditions that make a civil society, humanism and the common good possible. Access to parcels of agricultural land will be paramount. We will have to grasp, as the medieval monks did, that we cannot alter the larger culture around us, at least in the short term, but we may be able to retain the moral codes and culture for generations beyond ours. Resistance will be reduced to small, often imperceptible acts of defiance, as those who retained their integrity discovered in the long night of 20th-century fascism and communism.

We stand on the cusp of one of the bleakest periods in human history when the bright lights of a civilization blink out and we will descend for decades, if not centuries, into barbarity. The elites have successfully convinced us that we no longer have the capacity to understand the revealed truths presented before us or to fight back against the chaos caused by economic and environmental catastrophe. As long as the mass of bewildered and frightened people, fed images that permit them to perpetually hallucinate, exist in this state of barbarism, they may periodically strike out with a blind fury against increased state repression, widespread poverty and food shortages. But they will lack the ability and self-confidence to challenge in big and small ways the structures of control. The fantasy of widespread popular revolts and mass movements breaking the hegemony of the corporate state is just that – a fantasy.

My analysis comes close to the analysis of many anarchists. But there is a crucial difference. The anarchists do not understand the nature of violence. They grasp the extent of the rot in our cultural and political institutions, they know they must sever the tentacles of consumerism, but they naïvely believe that it can be countered with physical forms of resistance and acts of violence. There are debates within the anarchist movement – such as those on the destruction of property – but once you start using plastic explosives, innocent people get killed. And when anarchic violence begins to disrupt the mechanisms of governance, the power elite will use these acts, however minor, as an excuse to employ disproportionate and ruthless amounts of force against real and suspected agitators, only fueling the rage of the dispossessed.

I am not a pacifist. I know there are times, and even concede that this may eventually be one of them, when human beings are forced to respond to mounting repression with violence. I was in Sarajevo during the war in Bosnia. We knew precisely what the Serbian forces ringing the city would do to us if they broke through the defenses and trench system around the besieged city. We had the examples of the Drina Valley or the city of Vukovar, where about a third of the Muslim inhabitants had been killed and the rest herded into refugee or displacement camps. There are times when the only choice left is to pick up a weapon to defend your family, neighborhood and city. But those who proved most adept at defending Sarajevo invariably came from the criminal class. When they were not shooting at Serbian soldiers they were looting the apartments of ethnic Serbs in Sarajevo and often executing them, as well as terrorizing their fellow Muslims. When you ingest the poison of violence, even in a just cause, it corrupts, deforms and perverts you. Violence is a drug, indeed it is the most potent narcotic known to humankind. Those most addicted to violence are those who have access to weapons and a penchant for force. And these killers rise to the surface of any armed movement and contaminate it with the intoxicating and seductive power that comes with the ability to destroy. I have seen it in war after war. When you go down that road you end up pitting your monsters against their monsters. And the sensitive, the humane and the gentle, those who have a propensity to nurture and protect life, are marginalized and often killed. The romantic vision of war and violence is as prevalent among anarchists and the hard left as it is in the mainstream culture. Those who resist with force will not defeat the corporate state or sustain the cultural values that must be sustained if we are to have a future worth living. From my many years as a war correspondent in El Salvador, Guatemala, Gaza and Bosnia, I have seen that armed resistance movements are always mutations of the violence that spawned them. I am not naïve enough to think I could have avoided these armed movements had I been a landless Salvadoran or Guatemalan peasant, a Palestinian in Gaza or a Muslim in Sarajevo, but this violent response to repression is and always will be tragic. It must be avoided, although not at the expense of our own survival.

Democracy, a system ideally designed to challenge the status quo, has been corrupted and tamed to slavishly serve the status quo. We have undergone, as John Ralston Saul writes, a coup d’état in slow motion. And the coup is over. They won. We lost. The abject failure of activists to push corporate, industrialized states toward serious environmental reform, to thwart imperial adventurism or to build a humane policy toward the masses of the world’s poor stems from an inability to recognize the new realities of power. The paradigm of power has irrevocably altered and so must the paradigm of resistance alter.


Too many resistance movements continue to buy into the facade of electoral politics, parliaments, constitutions, bills of rights, lobbying and the appearance of a rational economy. The levers of power have become so contaminated that the needs and voices of citizens have become irrelevant. The election of Barack Obama was yet another triumph of propaganda over substance and a skillful manipulation and betrayal of the public by the mass media. We mistook style and ethnicity – an advertising tactic pioneered by the United Colors of Benetton and Calvin Klein – for progressive politics and genuine change. We confused how we were made to feel with knowledge. But the goal, as with all brands, was to make passive consumers mistake a brand for an experience. Obama, now a global celebrity, is a brand. He had almost no experience besides two years in the senate, lacked any moral core and was sold as all things to all people. The Obama campaign was named Advertising Age’s marketer of the year for 2008 and edged out runners-up Apple and Zappos.com. Take it from the professionals. Brand Obama is a marketer’s dream. President Obama does one thing and Brand Obama gets you to believe another. This is the essence of successful advertising. You buy or do what the advertisers want because of how they can make you feel.

We live in a culture characterized by what Benjamin DeMott called “junk politics.” Junk politics does not demand justice or the reparation of rights. It always personalizes issues rather than clarifying them. It eschews real debate for manufactured scandals, celebrity gossip and spectacles. It trumpets eternal optimism, endlessly praises our moral strength and character, and communicates in a feel-your-pain language. The result of junk politics is that nothing changes, “meaning zero interruption in the processes and practices that strengthen existing, interlocking systems of socioeconomic advantage.”

The cultural belief that we can make things happen by thinking, by visualizing, by wanting them, by tapping into our inner strength or by understanding that we are truly exceptional is magical thinking. We can always make more money, meet new quotas, consume more products and advance our career if we have enough faith. This magical thinking, preached to us across the political spectrum by Oprah, sports celebrities, Hollywood, self-help gurus and Christian demagogues, is largely responsible for our economic and environmental collapse, since any Cassandra who saw it coming was dismissed as “negative.” This belief, which allows men and women to behave and act like little children, discredits legitimate concerns and anxieties. It exacerbates despair and passivity. It fosters a state of self-delusion. The purpose, structure and goals of the corporate state are never seriously questioned. To question, to engage in criticism of the corporate collective, is to be obstructive and negative. And it has perverted the way we view ourselves, our nation and the natural world. The new paradigm of power, coupled with its bizarre ideology of limitless progress and impossible happiness, has turned whole nations, including the United States, into monsters.

We can march in Copenhagen. We can join Bill McKibben’s worldwide day of climate protests. We can compost in our backyards and hang our laundry out to dry. We can write letters to our elected officials and vote for Barack Obama, but the power elite is impervious to the charade of democratic participation. Power is in the hands of moral and intellectual trolls who are ruthlessly creating a system of neo-feudalism and killing the ecosystem that sustains the human species. And appealing to their better nature, or seeking to influence the internal levers of power, will no longer work.

We will not, especially in the United States, avoid our Götterdämmerung. Obama, like Canada’s Prime Minister Stephen Harper and the other heads of the industrialized nations, has proven as craven a tool of the corporate state as George W. Bush. Our democratic system has been transformed into what the political philosopher Sheldon Wolin labels inverted totalitarianism. Inverted totalitarianism, unlike classical totalitarianism, does not revolve around a demagogue or charismatic leader. It finds expression in the anonymity of the corporate state. It purports to cherish democracy, patriotism, a free press, parliamentary systems and constitutions while manipulating and corrupting internal levers to subvert and thwart democratic institutions. Political candidates are elected in popular votes by citizens but are ruled by armies of corporate lobbyists in Washington, Ottawa or other state capitals who author the legislation and get the legislators to pass it. A corporate media controls nearly everything we read, watch or hear and imposes a bland uniformity of opinion. Mass culture, owned and disseminated by corporations, diverts us with trivia, spectacles and celebrity gossip. In classical totalitarian regimes, such as Nazi fascism or Soviet communism, economics was subordinate to politics. “Under inverted totalitarianism the reverse is true,” Wolin writes. “Economics dominates politics – and with that domination comes different forms of ruthlessness.”

Inverted totalitarianism wields total power without resorting to cruder forms of control such as gulags, concentration camps or mass terror. It harnesses science and technology for its dark ends. It enforces ideological uniformity by using mass communication systems to instill profligate consumption as an inner compulsion and to substitute our illusions of ourselves for reality. It does not forcibly suppress dissidents, as long as those dissidents remain ineffectual. And as it diverts us it dismantles manufacturing bases, devastates communities, unleashes waves of human misery and ships jobs to countries where fascists and communists know how to keep workers in line. It does all this while waving the flag and mouthing patriotic slogans. “The United States has become the showcase of how democracy can be managed without appearing to be suppressed,” Wolin writes.

The practice and psychology of advertising, the rule of “market forces” in many arenas other than markets, the continuous technological advances that encourage elaborate fantasies (computer games, virtual avatars, space travel), the saturation by mass media and propaganda of every household and the takeover of the universities have rendered most of us hostages. The rot of imperialism, which is always incompatible with democracy, has seen the military and arms manufacturers monopolize $1 trillion a year in defense-related spending in the United States even as the nation faces economic collapse. Imperialism always militarizes domestic politics. And this militarization, as Wolin notes, combines with the cultural fantasies of hero worship and tales of individual prowess, eternal youthfulness, beauty through surgery, action measured in nanoseconds and a dream-laden culture of ever-expanding control and possibility to sever huge segments of the population from reality. Those who control the images control us. And while we have been entranced by the celluloid shadows on the walls of Plato’s cave, these corporate forces, extolling the benefits of privatization, have effectively dismantled the institutions of social democracy (Social Security, unions, welfare, public health services and public housing) and rolled back the social and political ideals of the New Deal. The proponents of globalization and unregulated capitalism do not waste time analyzing other ideologies. They have an ideology, or rather a plan of action that is defended by an ideology, and slavishly follow it. We on the left have dozens of analyses of competing ideologies without any coherent plan of our own. This has left us floundering while corporate forces ruthlessly dismantle civil society.

We are living through one of civilization’s great seismic reversals. The ideology of globalization, like all “inevitable” utopian visions, is being exposed as a fraud. The power elite, perplexed and confused, clings to the disastrous principles of globalization and its outdated language to mask the looming political and economic vacuum. The absurd idea that the marketplace alone should determine economic and political constructs led industrial nations to sacrifice other areas of human importance – from working conditions, to taxation, to child labor, to hunger, to health and pollution – on the altar of free trade. It left the world’s poor worse off and the United States with the largest deficits – which can never be repaid – in human history. The massive bailouts, stimulus packages, giveaways and short-term debt, along with imperial wars we can no longer afford, will leave the United States struggling to finance nearly $5 trillion in debt this year. This will require Washington to auction off about $96 billion in debt a week. Once China and the oil-rich states walk away from our debt, which one day has to happen, the Federal Reserve will become the buyer of last resort. The Fed has printed perhaps as much as two trillion new dollars in the last two years, and buying this much new debt will see it, in effect, print trillions more. This is when inflation, and most likely hyperinflation, will turn the dollar into junk. And at that point the entire system breaks down.


All traditional standards and beliefs are shattered in a severe economic crisis. The moral order is turned upside down. The honest and industrious are wiped out while the gangsters, profiteers and speculators walk away with millions. The elite will retreat, as Naomi Klein has written in The Shock Doctrine, into gated communities where they will have access to services, food, amenities and security denied to the rest of us. We will begin a period in human history when there will be only masters and serfs. The corporate forces, which will seek to make an alliance with the radical Christian right and other extremists, will use fear, chaos, the rage at the ruling elites and the specter of left-wing dissent and terrorism to impose draconian controls to ruthlessly extinguish opposition movements. And while they do it, they will be waving the American flag, chanting patriotic slogans, promising law and order and clutching the Christian cross. Totalitarianism, George Orwell pointed out, is not so much an age of faith but an age of schizophrenia. “A society becomes totalitarian when its structure becomes flagrantly artificial,” Orwell wrote. “That is when its ruling class has lost its function but succeeds in clinging to power by force or fraud.” Our elites have used fraud. Force is all they have left.

Our mediocre and bankrupt elite is desperately trying to save a system that cannot be saved. More importantly, they are trying to save themselves. All attempts to work within this decayed system and this class of power brokers will prove useless. And resistance must respond to the harsh new reality of a global, capitalist order that will cling to power through ever-mounting forms of brutal and overt repression. Once credit dries up for the average citizen, once massive joblessness creates a permanent and enraged underclass and the cheap manufactured goods that are the opiates of our commodity culture vanish, we will probably evolve into a system that more closely resembles classical totalitarianism. Cruder, more violent forms of repression will have to be employed as the softer mechanisms of control favored by inverted totalitarianism break down.

It is not accidental that the economic crisis will converge with the environmental crisis. In his book The Great Transformation (1944), Karl Polanyi laid out the devastating consequences – the depressions, wars and totalitarianism – that grow out of a so-called self-regulated free market. He grasped that “fascism, like socialism, was rooted in a market society that refused to function.” He warned that a financial system always devolves, without heavy government control, into a Mafia capitalism – and a Mafia political system – which is a good description of our financial and political structure. A self-regulating market, Polanyi wrote, turns human beings and the natural environment into commodities, a situation that ensures the destruction of both society and the natural environment. The free market’s assumption that nature and human beings are objects whose worth is determined by the market allows each to be exploited for profit until exhaustion or collapse. A society that no longer recognizes that nature and human life have a sacred dimension, an intrinsic value beyond monetary value, commits collective suicide. Such societies cannibalize themselves until they die. This is what we are undergoing.

If we build self-contained structures, ones that do as little harm as possible to the environment, we can weather the coming collapse. This task will be accomplished through the existence of small, physical enclaves that have access to sustainable agriculture, are able to sever themselves as much as possible from commercial culture and can be largely self-sufficient. These communities will have to build walls against electronic propaganda and fear that will be pumped out over the airwaves. Canada will probably be a more hospitable place to do this than the United States, given America’s strong undercurrent of violence. But in any country, those who survive will need isolated areas of land as well as distance from urban areas, which will see the food deserts in the inner cities, as well as savage violence, leach out across the urban landscape as produce and goods become prohibitively expensive and state repression becomes harsher and harsher.

The increasingly overt uses of force by the elites to maintain control should not end acts of resistance. Acts of resistance are moral acts. They begin because people of conscience understand the moral imperative to challenge systems of abuse and despotism. They should be carried out not because they are effective but because they are right. Those who begin these acts are always few in number and dismissed by those who hide their cowardice behind their cynicism. But resistance, however marginal, continues to affirm life in a world awash in death. It is the supreme act of faith, the highest form of spirituality and alone makes hope possible. Those who carried out great acts of resistance often sacrificed their security and comfort, often spent time in jail and in some cases were killed. They understood that to live in the fullest sense of the word, to exist as free and independent human beings, even under the darkest night of state repression, meant to defy injustice.

When the dissident Lutheran pastor Dietrich Bonhoeffer was taken from his cell in a Nazi prison to the gallows, his last words were: “This is for me the end, but also the beginning.” Bonhoeffer knew that most of the citizens in his nation were complicit through their silence in a vast enterprise of death. But however hopeless it appeared in the moment, he affirmed what we all must affirm. He did not avoid death. He did not, as a distinct individual, survive. But he understood that his resistance and even his death were acts of love. He fought and died for the sanctity of life. He gave, even to those who did not join him, another narrative, and his defiance ultimately condemned his executioners.


We must continue to resist, but do so now with the discomforting realization that significant change will probably never occur in our lifetime. This makes resistance harder. It shifts resistance from the tangible and the immediate to the amorphous and the indeterminate. But to give up acts of resistance is spiritual and intellectual death. It is to surrender to the dehumanizing ideology of totalitarian capitalism. Acts of resistance keep alive another narrative, sustain our integrity and empower others, who we may never meet, to stand up and carry the flame we pass to them. No act of resistance is useless, whether it is refusing to pay taxes, fighting for a Tobin tax, working to shift the neoclassical economics paradigm, revoking a corporate charter, holding global internet votes or using Twitter to catalyze a chain reaction of refusal against the neoliberal order. But we will have to resist and then find the faith that resistance is worthwhile, for we will not immediately alter the awful configuration of power. And in this long, long war a community to sustain us, emotionally and materially, will be the key to a life of defiance.

The philosopher Theodor Adorno wrote that the exclusive preoccupation with personal concerns and indifference to the suffering of others beyond the self-identified group is what ultimately made fascism and the Holocaust possible: “The inability to identify with others was unquestionably the most important psychological condition for the fact that something like Auschwitz could have occurred in the midst of more or less civilized and innocent people.”

The indifference to the plight of others and the supreme elevation of the self is what the corporate state seeks to instill in us. It uses fear, as well as hedonism, to thwart human compassion. We will have to continue to battle the mechanisms of the dominant culture, if for no other reason than to preserve through small, even tiny acts, our common humanity. We will have to resist the temptation to fold in on ourselves and to ignore the cruelty outside our door. Hope endures in these often imperceptible acts of defiance. This defiance, this capacity to say no, is what the psychopathic forces in control of our power systems seek to eradicate. As long as we are willing to defy these forces we have a chance, if not for ourselves, then at least for those who follow. As long as we defy these forces we remain alive. And for now this is the only victory possible.

Chris Hedges, a Pulitzer Prize-winning reporter for the New York Times, is the author of several books including the best sellers War is a Force That Gives Us Meaning and his latest, Empire of Illusion: The End of Literacy and the Triumph of Spectacle. He is married to the Canadian actress Eunice Wong. They have a son, Konrad, who is also a Canadian.